Coles, one of Australia's largest supermarket chains, reported first-quarter group sales of A$11.21 billion for the three months ended September 30, coming in just below the A$11.31 billion consensus from Visible Alpha. The miss reflects a broader shift in how Australians are shopping: they're chasing discounts, splitting their weekly shops across multiple retailers, and leaning harder on loyalty programs than ever before.
Management pointed to persistent cost-of-living pressure as the main driver. Shoppers are increasingly "cross-shopping"—buying some items at one store, others online, and still more at a competitor—to stretch their budgets. This behavior is reshaping the competitive landscape, forcing grocers to compete on deals rather than just everyday shelf prices.
Discounting: a double-edged sword
For Coles, the strategy of aggressive promotions and loyalty-linked offers is a classic tug-of-war. On one hand, discounts and specials keep customers coming through the door and can boost transaction volumes. On the other, they limit how much the company can raise prices without losing shoppers to rivals.
That tension is visible in the company's guidance. Supermarket sales rose 3.6% to A$10.32 billion in the quarter, but Coles expects first-half Supermarkets earnings before interest and taxes (EBIT) to be roughly flat year-on-year. In plain terms, the sales growth is being "bought" with lower effective prices—more items sold, but at thinner margins.
This isn't unique to Coles. Across the developed world, grocers are grappling with inflation-weary consumers who have become more price-sensitive. In Australia, the discount war has intensified as competitors like Woolworths and Aldi fight for market share. The result is a market where promotions are no longer occasional sweeteners but the primary way retailers compete.
What it means for your grocery bill
For everyday shoppers, the takeaway is that your grocery bill is increasingly set by which deals you catch. If you're willing to time your shopping around promotions, switch brands, or split your shop across stores, you can save significantly. But if you stick to the same basket week after week without chasing deals, you may not see much relief at the checkout.
The flip side is that headline shelf prices may not fall much. Supermarkets can keep revenue growing and protect profits by rotating discounts rather than cutting prices across the board. So while the average price of a basket might not drop, the effective price—what you actually pay—can swing more from week to week depending on your shopping habits.
This dynamic is also playing out in the broader grocery delivery space. As more shoppers split their purchases across online and physical channels, delivery platforms are jostling for position. Recent moves like DoorDash's $17 billion Instacart deal highlight how the grocery landscape is evolving, with technology and convenience becoming as important as price.
Investor perspective
For investors, Coles' update is a reminder that in a discount-driven environment, revenue growth doesn't always translate into profit growth. The company's guidance of flat first-half EBIT suggests that the cost of winning customers is rising. That's a key metric to watch in the coming quarters.
Investors will also be watching how Coles balances its loyalty program and promotional spend against its ability to maintain margins. In a market where consumers are empowered to shop around, grocers that can't keep up on deals risk losing volume, but those that over-discount risk squeezing their own profitability.
The broader economic backdrop matters too. With consumer spending remaining resilient in some economies, the pressure on grocers may ease if inflation cools and household budgets recover. But for now, the discount wars look set to continue shaping how Australians—and investors—think about grocery shopping.
For those watching the sector, the key question is whether Coles can turn its promotional strategy into sustainable profit growth, or whether the discount-driven model will keep eroding margins. The next earnings report will offer more clues.
