Woolworths’ second-quarter sales up 4.6% as Coles launches national pricing initiative

Supermarket giant Woolworths has reaffirmed its forecast of profit growth of 8-11% in 2009-10 after posting sales growth of 4.6% in the three months to December 31.

Australia’s largest grocery chain says sales hit $12.49 billion in the second quarter (excluding petrol sales through Woolworths’ joint venture with Caltex) with sales in the first 27 weeks of the financial year climbing 6% to $24.42 billion.

Sales from the company’s supermarkets division rose 4.3% to $11.58 billion in the second quarter, with Australian food and liquor sales up 5.9% to $9.14 billion.

However, sales in the company’s general merchandise division (which includes Big W and electronics retailer Dick Smith) slipped 0.2% to $1.9 billion, with sales at Big W down 0.3%.

The company’s hotel division, a joint venture between Woolworths and Melbourne-based pub baron Bruce Mathieson, fell 1.4% to $288 million.

Despite the fact that the Government’s stimulus payments occurred more than 12 months ago, Woolworths chief Mike Luscombe said the cash handouts had underpinned the December quarter sales result.

“In Australia, this quarter’s sales result is a strong indication of the positive impact of the Australian Government’s first stimulus package in 2008, which underpinned high consumer confidence during the global economic downturn and helped to safeguard jobs across the retail industry. Due to our customer focus, we were very well-positioned and therefore received a clear benefit from the stimulus package in the prior financial year.”

Woolworths opened 14 new stores during the half year, taking its total to 813 supermarkets.

Meanwhile, Woolworths great rival Coles, which is owned by the Wesfarmers Group, has turned up the pressure on its rivals on the issue of pricing by announcing that it will introduce “national” pricing on 8,000 items.

The items, which represent about a third of the company’s entire product range, include seafood, meat, dairy and bakery products, will be sold to Coles’ national lowest price.

The rest of the company’s product range will be priced on a state-wide basis, reflecting the fact supply agreements are typically state-based rather than national.

Competition expert Frank Zumbo from the University of New South Wales hopes Coles’ pricing policy leads to a push for more transparent pricing.

“While a genuine single “lowest pricing” policy is always to be welcomed, it’s important that Coles is fully transparent on the list of grocery items to be covered by the new pricing policy,” he says.

“With these types of announcements the devil is always in the detail and the onus is on Coles to tell consumers which products will be affected and by how much retail prices will change on the affected items.”