Mind the gap: Coles chases down Woolworths’ lead in supermarket wars

Coles has closed the gap against rival Woolworths, with a fresh survey of supermarket suppliers revealing the Leah Weckert-led group had a better trading period in the final quarter of the 2024 financial year.

The latest survey from analysts at UBS found Coles in June led 15 of its 26 sub-categories — including competitive pricing, value for money and catalogue effectiveness. This was up from the 14 categories it led in January, and the mere one category in June last year.

It comes just over a month after the first of the Federal Government’s new grocery monitoring reports revealed WA shoppers were paying the most for basic grocery needs across all of the mainland States, with Coles the most expensive in WA.

Consumer group Choice in March used undercover shoppers to compare the prices of a basket with several items. It found Coles was the most expensive at $70.78, Woolworths coming in next at $69.29 and Aldi at $52.52.

UBS analyst Shaun Cousins on Monday said trading for the fourth quarter of fiscal 2024 looked to have been in favour of Coles.

This was in line with trade feedback, with the number of suppliers who thought Coles had the better trading period from April to June more than doubling to 41 per cent.

“Coles closed the gap to Woolworths again in January 2024 and this was maintained in June 2024, now in line with the Woolworths average,” Mr Cousins said.

UBS is again forecasting Aldi to win market share over the next six months, while IGA is most likely to lose share over the period. This would be a reversal of COVID-19 trends as cost-of-living pressures supported Aldi market share gains above pre-pandemic levels.

On a net share gain basis over the next six months, Aldi and Coles are likely to win share, and IGA and Woolworths likely to lose.

UBS is taking a positive view on the outlook for supermarkets revenue but said it would not be as buoyant as in prior years.

It forecast gross margins to expand, albeit at a lesser rate, and cost-of-doing-business pressures — which have been a headwind — to moderate this financial year.

The UBS survey also revealed market growth expectations for the next 12 months have slowed to about 1.6 per cent, compared with the 1.8 per cent recorded in January.

Price inflation expectations lifted slightly to 2.3 per cent in June compared with the 1.7 per cent in January, but lower than the 4.8 per cent last June.

Mr Cousins said the outlook for price inflation this financial year was lower for dry grocery (1.4 per cent) versus fresh inflation (2.5 per cent), with supply volatility a key driver of fresh inflation.

Adding to fresh inflation was lower confidence from suppliers that cost-of-goods-sold inflation could be passed on in dry grocery (items such pasta, rice, sugar and coffee) as had been the case for the late 2010s and early 2020s.

“Suppliers are finding it more difficult to pass on higher costs,” Mr Cousins said.

“Suppliers are increasingly expecting consumers to trade down to smaller pack sizes and/or private label as a result of ongoing price inflation.”

Earlier this year, hardware stablemate Bunnings dethroned Woolworths as Australia’s most trusted brand,breaking the supermarket’s three-and-a-half year stronghold.

A Roy Morgan survey in March revealed both the major supermarkets amid increased scrutiny over their pricing practices over the past few months amid elevated inflation.