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Caution reigns, tactics change as store wars roll on

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The bosses of Australia's two mega supermarket chains, Woolworths and Coles have both declared that the average consumer is in a better place now than they were a year ago - but they are both still very cautious.

The sales results from both retailers have been released this week and while both grew at a reasonable pace, they had to fight hard for every customer.

Australian grocery shoppers are among the least loyal in the world and will readily switch supermarkets in response to discounting and other promotions.

Wesfarmers - which owns Coles, Kmart, Target, Bunnings and Officeworks - posted a better performance than Woolworths - which owns Big W.

In the crucial three months to the end of December, same store sales for Woolworths' Australian food and liquor business grew by 2.5 per cent. Coles grew by 3.9 per cent.


Their methods of enticement are finally starting to diverge. The big push at Coles has been to lure shoppers with 8 cents-a-litre fuel discounts.

Woolworths on the other hand spent its promotional dollars on more customer-focused strategies and rewarding loyal customers.

It looks like this will be fairly cost effective for Woolworths but it remains to be seen whether it will achieve the results.

Market darlings

Regardless of the battle royal between the two companies they have both been market darlings.

Investors understand that even a cautious consumer needs to eat and they are highly resilient to the troubles in the broader economy.

However it is the discount department store chains both companies own that supply some clarity on the robustness of consumer confidence.

The best performer in this regard was the Wesfarmers owned Kmart, whose comparable store sales jumped 3.7 per cent in the Christmas quarter.

This brand has a distinct advantage in that it is perceived as low price and good value. However its brand sister in the Wesfarmers stable, Target, is finding times tougher.

In its Christmas quarter sales fell marginally.

Big W - part of the Woolworths group - had an even softer quarter although management insists it had a good Christmas trading experience but was adversely affected by weak sales due to poorly performing promotional strategies in October and November.

But Woolworths boss Grant O'Brien noted the management had to work had to make Christmas a success. He said Big W had to provide the cautious consumer with reasons to feel confident about buying.

This is retail speak for discounting.

Wesfarmers chief executive Richard Goyder made it abundantly clear yesterday that Coles would keep up maximum pressure on cutting prices.

O'Brien says the days of a single cut in interest rates leading to a boost in shopping are over and that they need the effect of cumulative rate cuts to get much traction.

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