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Xmas shoppers drive Coles’ sales

The continuing battle between supermarket giants Woolworths Limited (ASX:WOW) and Coles – owned by Wesfarmers Limited (ASX:WES) continues unabated, with Coles striving to take a big chunk of Woolworths’ market share.

Coles has reported a 3.9% rise in same store sales for the three months to December 2012, and food and liquor sales of $7.7 billion over the period. All of Wesfarmers retail divisions reported growing sales, although Target still appears to be struggling, reporting just a 0.6% increase in sales for the quarter, and down 1.8% in same store sales terms for the half year, although Target is in the midst of restructuring its business.

Price deflation appears to be easing, recording a 0.9% fall, mainly supported by higher fresh produce prices.

Despite Woolworths rolling out its new Masters hardware format, Bunnings continues to grow sales both from existing stores as well as opening an additional nine new stores. Bunnings has eleven additional stores under construction at the end of December.

For consumers, the ongoing war between Woolworths and Coles is good news. Food and liquor prices have been falling, and both supermarkets have recently taken the fight into the local convenience stores and petrol stations. Fuel competition is fierce, while both have lowered prices in their convenience stores to match that in their bigger format stores.

The third force in supermarket retailing, Metcash Limited (ASX: MTS) and the IGA supermarkets which it supplies, appear to be caught in the crossfire. With US giant Costco recently reporting its maiden profit in Australia, and privately owned Aldi estimated to have captured 5% of the market with its 300 stores, the pressure on Coles, Woolworths and Metcash to maintain or grow market share is intense.

Foolish takeaway

The positive results released today by Wesfarmers suggest Woolworths’ quarterly results due out tomorrow should be equally positive. With all divisions of Wesfarmers reporting rising sales, it should also be relatively good news for other retailers, and may be the start of a turnaround in their fortunes.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.

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