Coles has posted a surge in revenue from its groceries business and expanded supermarket profit margins to the highest level recorded in the pandemic era, even as shoppers grapple with fast-rising household costs.
The revenue bump underpinned a robust rise in annual profit to $1.1bn. It threatens to draw Australia’s second largest chain back into the public limelight as cost-of-living pressures become a central political issue for the next federal election.
Coles chief executive, Leah Weckert, said on Tuesday the supermarkets business was enjoying strong momentum, driven by “a lot of Australians choosing to eat out less and eating at home more”.
“They’re looking to replicate some of the experiences that they would have had when they were eating out by buying products that might be a little more premium or a little more special when they come in to shop with us,” Weckert said.
But she also said some customers were choosing to go meat-free to save money.
“Customers continue to eat more at home, cut back on treats, eat less red meat and reduce their alcohol consumption.”
Coles attributed a 4.3% lift in supermarket sales revenue to $39bn to its seasonal campaigns, collectibles programs, strong trade events such as Christmas and Easter, as well as a sales lift from its digital channels.
Crucially, the operator significantly expanded its profit margins from its supermarket business to 5.2%, from 4.8% a year ago.
The figure, an industry standard that measures profitability, is now at the highest level in the years since Coles was separately listed from Wesfarmers in 2018.
It is also significantly higher than margins generated by its overseas peers, including in the UK.
The Greens senator Nick McKim said Coles’ profits were a “sick joke” for Australians struggling to afford groceries.
“Coles is cashing in on a crisis,” said McKim, who chaired the Senate committee into supermarket pricing practices earlier this year.
“They are price-gouging as food prices continue to drive Australia’s stubbornly high inflation numbers.
“This is corporate greed at its ugliest.”
Elevated prices for essential items like food, rent, mortgages, insurance and utilities have been a large driver of household inflation in recent years.
The Coles results show there is a growing divide between the strong profitability of companies selling essential items, which often compete in sectors with limited competition, and those selling discretionary goods, which are more sensitive to consumer spending cuts.
Weckert said the increased margins from the supermarkets business did not include taxes paid or rising financing costs, and were therefore not a true reflection of profitability. She said suppliers and employees were being paid more than a year ago.
“We have had a very strong focus on cost management in our business so that we are able to continue to invest in prices for consumers and bring prices down,” Weckert said.
Coles shares lifted more than 2% shortly after the results were released on Tuesday. Its larger rival, Woolworths, will report its 2023-24 results on Wednesday.
The two chains control about two-thirds of the market.
Coles’ net profit result was up 8.3% on the prior year, although 2023-24 included one additional week of retail trading. On a “normalised” basis, its profit increased 2.1%.
The food retailer rewarded shareholders by increasing its final dividend to 32 cents a share, bringing the full-year payment to 68 cents.
