Coles Liquor sales for the third quarter of 2020 were $740million, up 6.1% on the prior corresponding period, with comparable sales growth of 7.2%.
However, the impact of COVID-19 on sales in Liquor only began to materially elevate in the latter part of March, following the Federal Government’s decision to close hotels, pubs, clubs and licensed venue operators, which in turn led to Liquor placing limits on products per customer.
Meanwhile, supermarkets have recorded their highest quarterly comparable sales growth in Coles' history.
Total supermarket sales revenue for the third quarter rose to $8.23 billion, up 13.8% on the same time last year.
During an “extraordinary March sales spike” CEO Steve Cain revealed in an investor call that the priority of the Supermarket Taskforce, convened by the Department of Home Affairs, was to “curb demand”.
“I never thought I would ever be on a government call asking them for help to try and reduce sales, hopefully it will never happen again,” Cain said.
Margin deterioration due to customer pivoting to value offerings
Coles Liquor sales experienced margin deterioration during the period as customers moved towards more bulk and value-oriented products.
There was a pivot towards cheaper wines under $20 and larger pack sizes of mainstream beer rather than six-packs of craft brands.
Moving forward, Cain said Coles is “very conscious that value will be very high on the public agenda”.
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.
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.
The renewal program across the First Choice Liquor Market continued with four renewals completed during the quarter.
The Vintage Cellars trial concept store is also operating with "encouraging early results", particularly in the spirits and wine categories.
During the quarter, refreshed websites were launched across all three banners which delivered online growth of 34%.
Investments were also made in online capacity to support the growing demand for online delivery.
Sales growth from exclusive brands increased by 10%. A total of 10 exclusive liquor brand lines were launched during the quarter with 36 awards, medals and accolades received.
Coles said its Scotch whisky partner, Loch Lomond, continued to deliver exceptional whisky that is highly awarded, most recently picking up two Double Gold medals at the World Spirits Competition in San Francisco for the Loch Lomond 18-year-old Single Malt and Loch Lomond 12 year old Single Malt.
Fili Prosecco also picked up Gold at the Mundus Vini 2020.
Liquor opened two new stores during the quarter and closed six, bringing the total network to 913 retail liquor sites.
The outlook for liquor
Coles Liquor sales are expected to remain elevated as long as restrictions on hotels, pubs, clubs and licensed venue operators continued.
Margin deterioration associated with change in mix is expected to persist for the period that these measures remain in place, as will the incremental COVID-19 costs related to factors such as higher staff and cleaning requirements.
Further range review activity continues in Liquor, with the associated clearance activity expected to continue to impact EBIT, consistent with the trends seen earlier in the year.
Cain concluded: "As we all continue to adjust to the many changes that have resulted from the pandemic, Coles is already taking steps to help restore Australia’s economic recovery. This includes hiring an additional 12,000 team members, continuing our multi-billion dollar capital and operating expenditure plans to underpin future growth, continuing to prioritise value for customers, continuing sporting and community sponsorships, and paying an interim dividend of more than $400 million to our shareholders, which directly and indirectly benefits millions of Australians.”
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