Coles CEO tells ACCC: More customers are going to Aldi first for ‘the big shop’

Coles chief executive Leah Weckert has told the Australian Competition and Consumer Commission’s inquiry into supermarket pricing that Aldi was now a “significant and credible competitor” and revealed customers were increasingly doing their initial shop at the discount chain before finalising their purchases at Coles.

“We have certainly found over time that we have more and more customers that do the big shop at Aldi to start, and then they use us as a top up shop,” she said in response to questions from counsel assisting Naomi Sharp SC.

“That’s something that we definitely don’t want to happen. We want to be the destination for a big shop, and so we do consider them to be a real credible competitor,” she said.

Ms Leckert’s testimony follows that of Woolworths executives earlier in the week with the major firms at pains to convince the regulator that the domestic supermarket industry is “highly competitive”.

Collectively Coles and Woolworths account for about 65 per cent of the share of groceries sold in Australia.

Ms Leckert also conceded that Aldi have “lots of interesting things in their stores” such as the special buys in the centre aisle, and “lots of really great, unique products as well. Their high-end chocolate is very good quality (as are) some of their French cheeses.”

On Monday Woolworths‘ chief executive Amanda Bardwell said that Aldi was a key benchmark for pricing, and Ms Leckert confirmed that “on many essential products they are the price benchmark in the market that we’re seeking to to meet.”

She also said that price competitiveness with Aldi in areas like Melbourne, Brisbane and Adelaide meant customers in places like Tasmania, North Queensland and Darwin received similar price matching.

Addressing cost-of-living concerns, Ms Leckert told the hearing that the firm had “a job to do in terms of trust and rebuilding trust with consumers”, who had been hit by high inflation as a result of disrupted supply chains during COVID and the Russian invasion of Ukraine.

In surveys with customers, Coles found that 90 per cent had changed their shopping habits.

“We have seen for about 18 months, shopping differently to the past. Shopping around is one of them, trading down or looking for more affordable options,” she said.

“They are also trading out of certain products for example, trading out of steaks into mince or out of meat protein entirely into buying more eggs, going meat-free a couple of times a week.”

To support customers, Ms Weckert said Coles had made it easier to use Fly Buys to pay for products and expanded its range of own-brand products. Speaking to the ACCC on Monday, Woolworths chief executive Amanda Bardwell said its own brand products were 30 per cent cheaper on average than branded products.

Ms Weckert said Coles had put through 90 per cent of supplier requests for price increases after conducting their own research into the underlying commodity dynamics, including multiple rounds of price hikes at the bequest of major multinational suppliers.

Under examination from Ms Sharp, Ms Weckert, rejected the assertion that Coles was profiting from the rising input cost of groceries.

“EBIT (earnings before interest and tax) is a very well accepted metric of profit, and on that metric, we see that Coles’ profit has increased both in dollar terms and percentage terms. Suppliers say they’re being squeezed. Consumers say they’re being squeezed. How is it that Coles is profiting in these conditions,” Ms Sharp asked.

In response, Ms Weckert said that EBIT margins had stayed consistent over the past four years at around 5 per cent, dropping to 4.8 per cent as a result of theft-related stock loss in 2023. She said that had put through 90 per cent of supplier requests for price increases after conducting their own research into the underlying commodity dynamics.

Coles had also undertaken a number of internal programs to reduce costs in a time of wage, rent and energy inflation.

“We’ve worked very hard on efficiency programs ... to take out a billion dollars in savings over four years. Our evidence would be that we have had quite a stable EBIT margin, and the improvements that we saw between ‘23 and ‘24 were as a result of us taking actions within our business which drove efficiency and improved performance,” Ms Weckert said.

She said that profit margins had stayed consistent with global peers.

Ms Weckert also supported Ms Bardwell’s testimony that Amazon is becoming a significant competitor across “thousands” of the supermarkets’ higher margin products, such as healthcare and soft drinks.

“Given the growth that we’re seeing and the information back from suppliers, this is something we are paying a lot of attention to and are worried about, because they’re typically the categories which in our business (are) of higher margin,” she said.

“Having a competitor that is competing so significantly on price on those categories is quite disruptive to our business model.”