Coles online sales growth halved by COVID-19 shutdown

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Coles online sales growth halved by COVID-19 shutdown

Forced closures eat growth as supply chain, fulfilment realigned.

Australia’s now globally infamous supermarket stampede to stock-up on toilet paper and pasta has come back to haunt Coles group, with online sales halving in its third quarter 2020 (Q3 2020), after the retail giant was forced to suspend online sales amid the crush.

Numbers reported on Wednesday by Coles reveal its once mighty online sales growth was cruelled in March after it put up shutters on its web store amid the enforcement of purchasing limits on certain product categories and severe supply chain strains that left shelves bare for weeks.

However Coles online sales still grew, and in retail you take double digit growth where you find it.

Coles online hit a respectable 14 percent in Q3 2020 in supermarkets, even if a way back from stellar growth of 27 percent in Q3 2019, when the retail giant stated online sales at more than $1 billion on rolling 12 month basis.

Like rival Woolworths, Coles suspended almost all of its online services in March to mitigate a massive surge of panic buying that also necessitated putting security guards on its shop floors to keep public order and prevent brawls over bog roll.

It has since gradually restored online services through its Coles Online Priority Service that triages grocery basics to those most in need, especially the elderly and the vulnerable, before attending to other customers.

There’s also been no let-up on the robotics and automation front, with Coles saying it “progressed automation projects with the contracts relating to the Ocado sites in New South Wales and Victoria well advanced.”

“Construction continuing throughout the quarter on the Witron distribution centre in Queensland,” Coles said.

Coles restored full online services on 22nd April after significantly bolstering its delivery and click-and-collect capacity and reorganising how it fulfils online orders.

An additional 12,000 staff have been pulled into Coles’ COVID-19 response effort with general manager of Coles Online and Strategic Projects, Karen Donaldson, saying hundreds of extra customer service agents had been to meet increased demand for online deliveries.

“Our team has worked really hard over the past few weeks to improve stock availability to help us fulfil customer orders,” Donaldson said last week.

“By reorganising our delivery windows we have been able to increase the number of slots available for customers.”

Woolworths on Tuesday announced it was roping in Uber drivers for deliveries, with orders hand-picked in stores and then passed onto Uber drivers, with Woolworths director of e-commerce, Annette Karantoni, describing recent growth in demand for home delivery as “unprecedented”.

Coles also expects online demand to stay elevated and is pivoting to deal with the change.

“Growth was supported by the expansion of the network and stronger seasonal volumes across the January holidays,” Coles told investors on Wednesday.

“Coles Online is now seeking to increase capacity to meet the demand of customers by recruiting more team members and extending and increasing pick and delivery shifts.”

Will supermarkets ever be the same again?

One thing that’s less clear, like so much of the current global pandemic situation, is what lasting changes will come to major grocery and retail and how it interacts with online.

It was only at the last set of annual numbers that Coles and Woolworths declared their online operations to be profit margin accretive rather than profit margin dilutive, a factor institutional investors track closely as online sales eat physical sales.

The key factor in achieving that was the heavy augmentation of click-and-collect where customers increasingly pre-ordered staples and then ‘shopped the store’ for incidental discounts, fruit and vegetables and other discretionary products.

Where that has landed now is anyone’s guess, but what is clear is that it will still be cheaper for customers to collect than to roll a truck, Uber or courier.

What we do know is that if social distancing requirements remain in place for some time, the way we physically shop will change considerably and the operating models of supermarkets, as essential services,  will need to change with that, especially around click and collect.

It won’t come in the quarterly numbers, but the likelihood of online staying margin accretive at either of the big supermarkets over the next year is borderline at best, but that’s unlikely to be something investors will mark down given how much retail trade has flowed to big grocery.

Coles Group put its total third quarter 2020 sales at $9.22 billion, up a whacking 12.9 percent from $8.173 over the previous corresponding period, with supermarkets accounting for $8.23 billion of that.

Bottoms-up Australia

One solid growth area Coles visibly played down in its results was booze, as Australian’s forfeited nights out and barbeques with friends or family for a night in on the couch with Netflix and a glass of wine. Or maybe a bottle. Or two.

“Liquor was negatively impacted by bushfire smog over capital cities and floods in January and February, before being impacted by COVID-19 later in the quarter. Liquor achieved comparable sales growth of 7.2 percent for the third quarter,” Coles said.

You read that right, despite a rubbish Christmas and new year, Aussies still managed to booze their way through the lockdown enough to stay on the right side of the ledger, fairly logical given pubs are shut.

Coles doubled down on online booze as well, calling out “refreshed websites” across all three “liquor banners, delivering online sales growth of 34 percent in the third quarter.”

That said, Coles isn’t exactly celebrating, noting it also set limits to liquor purchasing.

“Prior to the onset of COVID-19, the liquor market remained subdued as customer drinking habits were impacted by the bushfire smog and subsequent floods,” Coles said.

“Over the quarter there was strong growth in the spirits category, offset in part by lower volumes and beer and ready-to-drink categories during the period when bushfire smog impacted air quality in January.”

Forget Donald Trump mutterings. Nothing like a glass of 12 year-old single malt disinfectant before bed, and Australians know it.

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