MARKETS SPECTATOR: Coles' fresh focus

Despite a strong sales result, the retailer says it `still had a fair way to go’ to improve Coles' fresh fruit and vegetable product offering.

If you’re an essential part of a duopoly, is 6.6 per cent sales growth in your food and liquor business proof that you are doing well? Wesfarmers managing director Richard Goyder and finance director Terry Bowen think so.

They describe Coles’ $6.49 billion revenue number for the three months to March 31 as "pleasing". Analysts agree. Investors too.

In a falling market, the S&P/ASX 200 Index was down 1.6 per cent at 4:07 pm AEST, Wesfarmers shares were up 0.9 per cent to $42.26, not far from its 12-month high of $43.50. The stock has returned 52 per cent return in the last 12 months, according to Bloomberg. There are benefits in being part of a duopoly in investors’ minds.

Still, Goyder and Bowen admit that the 754 Coles supermarkets "still had a fair way to go" to improve their fresh fruit and vegetable product offering. Australian consumers, say Goyder and Bowen, are "price conscious" and "looking for retailers to give good reason why they should buy product from you".

Coles may have to improve the quality of its fruit and vegetables offering if it wants loyal customers to buy more if the chain discontinues discount promotions that helped increase sales in the March quarter.

There are signs the turnaround story for Coles is coming to an end. Goyder and Bowen admit that new and refurbished stores are at the "top end" of profitability.

By the third year, new or revamped stores’ profitability slides to "normalized" rates, the two executives say. Coles will continue to close down stores it views to be in bad locations and open or refurnish ones in good locales.

But how many more stores can be opened or refurnished? Coles store numbers may be soon be at saturation point. Sales growth may not be so rosy in the future.