THE DISTILLERY: Coles over China

You would have thought that with its September and third quarter economic data releases yesterday, we'd have extensive comment and analysis on the state of the Chinese economy this morning in the papers? Nope, apart from some news reports and brief commentary, the focus was on banks, Woolies vs Coles and the James Packer raid on Ten Network. A case of Little Australia, perhaps? The banks and interest rates were entertaining, given the mess the federal opposition is making of the story, but the really interesting business question being asked is: is Coles the new Woolies for the business media – that is, the winner, to be glorified at every opportunity – and Woolies the new Coles – that is, the loser?

Fairfax's Melbourne Age reported this morning: "Coles' revamp of its supermarket format as well as the rollout of a new store model has lured back a million shoppers, more than triple the quarterly sales growth of arch-rival Woolworths. However, Wesfarmers boss Richard Goyder is yet to declare victory in the turnaround of the conglomerate's Coles division as he sticks doggedly to the five-year plan to bolster the nation's No. 2 supermarket, a plan still a few years from completion."

The Australian's John Durie, who tipped the Coles' ascension yesterday, this morning writes: "The retail momentum is all with Coles. It has outpaced Woolworths for the fifth consecutive quarter and for the first time in recent memory has added more sales dollars than its bigger competitor. In the first quarter of 2010-11, Coles supermarkets and liquor outlets added $331 million in sales against $292 million for Woolies. These may not be big numbers against Woolies sales of $9.3 billion but the bragging rights are now with Coles' Ian McLeod. That in itself is a landmark not passed for a decade or more and noteworthy also given Woolies has 7 per cent more shop floor space and in the last quarter reported based on 14 sales weeks against 13 for Coles. " And The Australian Financial Review says "Food and liquor retailer Coles grew sales three times faster than market leader Woolworths in the latest quarter and has vowed to maintain pressure on rivals by using lower prices to lure customers."

Business Spectator's Stephen Bartholomeusz wrote in his comment late yesterday: "The gathering momentum in Coles' food and liquor sales would be causing some furrowed brows at rival Woolworths. Today the Wesfarmers-owned Coles reported a 5.9 per cent increase in first quarter sales, with a 6.2 per cent increase in comparable store sales. Earlier this week Woolworths announced a 3.2 per cent increase in its Australian food and liquor group's sales, with comparable store sales growth of 2 per cent. While there is no cause for alarm – Woolworths' supermarkets and liquor chains have a sales base, at $9.3 billion for the quarter, far larger than Coles' $5.6 billion and Coles is coming off a far inferior platform – the rate at which Coles is rebounding would be concerning to Michael Luscombe and his team."

And The Australian's Tim Boreham wrote yesterday that the battle between Coles and Woolies is getting closer: "In a year of dead-heat elections and grand finals, it's apt both Woolies and Coles have posted headline first-quarter sales increases. Both reported jumps of just over 4 per cent, but as usual the devil is in the detail...it's clear that Coles is narrowing the gap on the long outperforming Woolies."

Yesterday, John Durie made a very rational point about the mining tax, Rio Tinto, BHP and the future in his daylight column yesterday: "This said Prime Minister Gillard would be quite within her rights to back down from the mining tax deal and instead start from square one. The existing version was born out of the most incompetent policy process in recent government history and the miners were rightly angered at the lack of consultation. The country would emerge the winner with a rational mining tax developed on an industry wide basis." And the AFR wrote this morning that BHP says it won't overpay for Potash Corp: "BHP Billiton chairman Jac Nasser said last night the miner would abandon its $US40 billion hostile bid for Potash Corporation of Saskatchewan if it did not create shareholder value." All well and good, but at what price does Potash stop adding value. Tell us that, Jac.

The AFR mentioned the banks this morning: "The competition regulator has joined federal Treasury in warning that more action may be needed to rein in the big four banks, and called for new laws to deal with potential collusion on interest rate changes." And the paper pointed out, unkindly: "The more shadow treasurer Joe Hockey talked yesterday, the worse it became. The starting point was reasonable enough: the banks are playing customers – and the government – for mugs by arguing they have to raise interest rates even without official rates going up because of increased costs of funding, despite Reserve Bank figures showing their cost of funding isn't rising."

The Australian's David Uren says: "A threat by Joe Hockey to punish any bank that lifts interest rates by more than RBA moves has fuelled doubts about the Coalition's commitment to market reform. Mr Hockey, the opposition Treasury spokesman, said the Coalition would use its numbers in parliament to take action against the banks if the government did not, declaring that legislation was one of the options. Mr Hockey's comments caused confusion in the Coalition, with one Liberal backbencher mistaking them for "lunatic fringe-type" proposals from the Greens, while they brought rebukes from both Wayne Swan and the head of the Treasury department, Ken Henry."

And The Sydney Morning Herald reported: "The opposition has demanded that banks be punished for increasing interest rates above levels granted by the Reserve Bank but has found itself being accused of advocating the re-regulation of rates. The shadow treasurer, Joe Hockey, said yesterday that the banks were ignoring constant threats by the Treasurer, Wayne Swan, to not lift rates above official increases and were planning to do so again on Melbourne Cup Day, whether the Reserve moved or not. Mr Hockey found himself under fire for leaving open all options, saying there were many ''levers'' available to government. He threatened that if the government did nothing, the opposition would gather the numbers in Parliament to legislate action." And the Melbourne Age's Peter Martin wrote: "The Commonwealth Treasury is on a war footing, preparing for a public assault on any bank that attempts to push up its mortgage rate in excess of the expected Reserve Bank rate rise on Melbourne Cup Day."

And the AFR's Chanticleer columnist wrote: "In all the media frenzy over James Packer's raid on Ten Network, one jumbo sized media player has been missing from the discussion – and there is a simple reason why." No, not Rupert Murdoch, but Telstra. And Fairfax's Malcolm Maiden wrote: "Packer is going to control Ten with a 20 per cent shareholding, in all but a strictly legal sense. Ten's shareholders are not going to get the bid they deserve, given the magnitude of the changes that are coming. And they should be up in arms about that. But they will knuckle under and cop it sweet if Packer gets Ten's share price up, and if he turns Ten into a low-cost cash cow, that's the most likely outcome." Really, and remind us again of Mr Packer's credentials in TV. If it was his late father buying, it would be a very different story and we could take all the newspaper comment seriously. And by the way, if the Chinese economy catches a cold, Mr Packer's Macau casino business is in trouble – that's another reason why China is very important to Australia. And, it happened in 2008-09.