IN AUSTRALIA'S great supermarket war it remains game on. Competing is in their corporate DNA and after another round of sales performances Coles remains a clear winner over Woolworths.
And no matter how well Woolworths grows its sales, it will be the loser when it runs second to Coles.
Woolies' chief executive, Grant O'Brien, often denies the contest. He says when running his business it's all about Woolworths v Woolworths.
Sure, he needs to ensure he improves on his own company's results, but beating the competition has to be every bit as sweet.
No matter which way you spin it, the numbers don't lie. In the food and liquor area (and measuring like-for-like stores) Coles grew sales in the three months to December by 3.9 per cent and Woolworths by 2.5 per cent.
The gap between the two may be a bit slimmer when the profit numbers come in, but right now Coles has maintained the lead it established in first quarter of 2010 - which was about a year after Wesfarmers bought the retail conglomerate which also contains Kmart, Target, and Officeworks.
The message from Woolworths' company briefings is that it has devised a break-away strategy - one that differs from that employed by Coles.
There was lots of discussion about how this break-away strategy was going to improve the loyalty of Woolworths shoppers - the company's holy grail.
The big message from Woolworths was that it had already started to gain traction. Despite the fact Coles improved sales more than Woolies, the latter was closing the gap. In the latest quarter, Coles growth was 140 basis points ahead of Woolworths, 140 points in the quarter before that and 270 basis points behind in the quarter before that. It could be a bit of a trend but 18 months ago the gap was a more narrow 120 basis points.
Thus, the lead moves around a bit and probably a bit too much to declare yet that Woolworths is definitely on the comeback.
The history over the past decade was that until 2008 when Wesfarmers bought the Coles group, Coles management just tried to follow the Woolies strategy. Over the past five years under new management, Coles took a new direction and Woolworths followed it. So the fact that their strategies are now diverging is something of a new phenomenon.
It involves finessing the marketing and promotion strategy and spend. Woolworths has spent a lot of capital to mine its customers for data and capture their loyalty. A major part of this was to team up with the Qantas frequent flyer program.
Woolworths now has a far more intimate understanding of its individual customers and their habits and spending patterns.
Thus it can target its promotional offers in a more refined and cost effective way. This is not about reinventing the wheel.
Woolworths is now mimicking Tesco which pioneered this strategy to great effect in the UK.
The idea is to offer bonuses to particular groups, based on income, spend or needs, rather than using a blanket approach.
Where Coles has offered its shoppers an 8¢-a-litre discount voucher on fuel over an extended period, Woolworths will offer this only in peak pump periods such as back to school and back to work.
Woolworths will reward some of its customers with gift vouchers if they spend a certain minimum amount over a certain number of weeks. Gifts for some, discounts for others and less wastage overall.
Whether this more targeted approach will allow Woolworths to use its promotional budget more effectively will be better demonstrated when its profits are released.
And there is nothing to stop Coles from pirating the Woolworths loyalty strategy if it works.
Coles also engages in loyalty programs and mines data from its customers.
It is understandable why loyalty is the new black in the supermarket space. Only 16 per cent of Australians are loyal to their grocery store. Woolworths noted yesterday it had more than 20 million customers per week. Even accounting for repeat customers, once you take those too young or too old or too disinclined to shop out of the equation, it's pretty clear that most of the grocery shopping population visits a store every week. And equally most would also shop at Coles.
Thus enticing the high quality customer with a big weekly spend is fundamental to success.
Coles and Woolworths both say they have increased market share, but then so does Aldi and Costco.
Sales and profits from both the major supermarket chains are improving, so there is nothing for investors to be concerned about. Both trade on price earnings rations between 15 and 20 times - well ahead of most other companies listed on the Stock Exchange that offer reliable earnings.
They are a safe yield bet for cautious investors looking for something sexier than bonds.
Coming second is not an option in grocery war
IN AUSTRALIA'S great supermarket war it remains game on.
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