The first half of the 2019 financial year has has delivered flat sales for Coles Liquor.
Sales revenue for the segment was $1.7 billion, an increase of 0.6% on the prior corresponding period.
Overall, Coles’ net profit fell 29.4% to $381 million in HY19, due to $146 million in supply chain restructuring charges.The charges relate to Coles’ plans to build two new automated warehouses and close smaller distribution centres.
Supermarket earnings fell 26.7% to $441 million despite a 3.6% increase in sales to $16.2 billion (on a retail calendar basis).
Coles Group CEO Steven Cain said the result for the first half of the 2019 financial year was a solid outcome in a challenging retail environment, and Coles was now laying the foundations for long term growth – including a $950 million investment in supply chain automation and the New Alliance Agreement between Coles Express and Viva Energy.
“We have delivered strong cash generation and we have a robust balance sheet which will enable us to reposition the business in the years ahead,” Cain said.
Coles Liquor’s comparable sales growth was flat due to the impact of New Year’s Eve, typically a strong trading day in the liquor calendar, which fell in the third quarter of this financial year compared to the second quarter last year.
NYE adjusted comparable sales growth was 1% for the half and 0.7% for the second quarter.
Trading in the second quarter was impacted by unfavourable weather relative to the prior year, which impacted transaction growth particularly in beer and ready-to-drink (RTD) categories.
The company noted that transaction growth accelerated in December across all brands, particularly over the key Christmas period.
Average basket size continued to increase across the period, driven by general market trends of premiumisation and a favourable mix impact from overall spirit category growth.
There was also online sales growth of 30%, with 70% of online orders now fulfilled via Click & Collect.
Private label a winner
Gross margin for Coles Liquor increased by 9bps to 28.3% primarily due to margin improvements from “exclusive brand expansion and improved supplier collaboration”.
During the half, more than 50 new exclusive lines were launched, including a number of award-winning products.
In November, Coles private label wine Story Bay Semillon Sauvignon Blanc 2017, priced at just $7 a bottle, beat a field of 2500 wines to win best wine under $20 at the Winestate Wine of the Year Awards.
Nocturne has made exclusive wines for Coles Liquor since 2012, was responsible for creating the winning wine.
Coles acting chief executive liquor and hotels Cathi Scarce said: To have this recognition from some of the industry’s top wine tasters is further evidence that we’re getting it right by working with the best winemakers in Australia to deliver amazing quality wines at a great price.”
Last year, the company revealed that, across the board, it wants 40% of its products to be homebrand by 2023.
Liquorland leads results
Liquorland continued to be the strongest performer during the period. Coles noted that this was achieved through a continued focus on improving range, innovation through exclusive brands – particularly in the wine category – and provision of more convenient solutions to customers through Click & Collect and same-day and next-day delivery.
The First Choice format continued to evolve with 15 First Choice Liquor Market brand conversions completed during the period. Coles said that conversions were driving trading improvements, with customers responding positively to the refreshed format and offer.
Trading conditions for Vintage Cellars remained challenging during the half, with a store closure also impacting the result.
Investment in the store network continued in the half with 14 Liquorland renewals in the next evolution format. During the period, 16 new stores were opened and seven closed, resulting in a total of 908 retail liquor sites at end of the half.