Supermarket giant Coles has said the higher cost of living is beginning to affect some customers.
- Coles posted a 4.3% rise in profit to $1.05 billion
- The supermarket giant says many of its suppliers are requesting price increases for their products as their costs rise.
- The CEO of the company said that about 20 percent of his clients have reduced their expenses
During his full-year earnings call, CEO Steven Cain said some shoppers are starting to buy fewer or cheaper products.
“Maybe as many as 20 percent of consumers … are obviously finding it difficult,” he said.
But many households with secure jobs and savings continue to spend freely.
“What we’ve seen in the current quarter is that for the first time, we’re seeing significant increases in transactions, but we’re also seeing decreases in baskets,” Cain added.
He explained that there may also be a delayed impact once more households abandon fixed-rate mortgages.
Suppliers ask for price increase
Coles said inflation in food items jumped to 4.3 percent in the fourth quarter of the fiscal year, bringing the annual figure to 1.7 percent.
He noted that several suppliers requested price increases.
Bakery goods were affected by higher wheat prices, while fresh fruit and vegetables were in short supply due to widespread and repeated flooding in South East Queensland.
Iceberg lettuce made headlines earlier in the year when prices rose above $10.
But the Coles boss said fresh food prices are beginning to moderate and lettuce has dropped back to around $3.
“For those of you who like a full burger or Caesar salad, I’m thrilled to announce the return in abundance (as Curtis Stone would say) of iceberg lettuce to Coles for about $3,” said Cain.
“We have fixed the price of more than 1,100 products in supermarkets and online until at least January 31, 2023 and have begun to reduce the prices of an additional 500 products.”
However, VanEck chief investment officer Russel Chesler said Coles could generally pass on price increases to maintain, and even increase, its profit margins.
“While inflation may moderate in the coming months, with a 70 percent chance that La Niña will return and headline inflation remains high, food inflation is unlikely to go away any time soon and will remain elevated,” he warned. .
“With continued food inflation, supermarket margins are expected to remain at their current levels, or possibly widen further in the near term.
“Coles is in a fortunate position to benefit from inflation, at least in the short term. Reflecting this, supermarket margins improved substantially to 26.3 percent from 25.9 percent a year earlier.
“Australian households are getting paid and they want to spend and, more importantly, they have to spend in supermarkets.”
Cole’s profits increase
Coles reported a full-year after-tax net profit of $1.05 billion, up 4.3 percent from the prior year.
Revenue rose 2 percent to $39.7 billion.
But inflationary pressures are also hitting the company, with higher wages, rents and capital costs.
COVID-19-related costs totaled $240 million for the year, up from $130 million last year, primarily due to staff absences.
Coles will pay a final fully paid dividend of 30 cents per share, bringing the total dividend per share to 63 cents per year.
Shares of the company fell 4.6 percent to $17.84.
However, Chesler is optimistic that the company will weather any economic downturn better than most.
“Coles could be an effective defensive stock for portfolios, as we all need to buy food, regardless of how the economy is,” he concluded.