Leading Australian supermarket, fuel and liquor retailer Coles Group Limited (ASX: COL) has recently slashed supermarket prices on over 300 products in a bid to increase sales revenue (down nearly $1 billion in FY19) by undercutting the prices of nemesis Woolworths (ASX: WOW). However, Coles claims that this time they’ll wear the cost of the price cuts, rather than their suppliers, as is traditionally the case. This comes as Coles claims the most substantial cuts will be to their private label products, which will make up over a third of the price cuts.
Coles has slashed prices on over 300 products in an attempt to awake a price war (Credit: News.com.au)
Despite the cuts, Coles intends on maintaining profit through a combination of increased sales (as a result of the cuts) and their $1 billion cost cutting plan implemented at the end of FY19. The cost-cutting plan proposes to increase technological efficiency and cut head office staff in order to offset auxiliary rising costs and institute long term growth. The announcement of the plan saw Coles’ share price shoot up nearly 8%.
The price cuts have contributed to Coles’ significant 2019 success, with share price growth of over 33% in the past 6 months alone, significantly higher than competitor Woolworth with 21% in the same period. Furthermore, the stock is trading at a near all-time high, a positive sign for shareholders, especially when considering the meagre 1.6% dividend yield. Coles (ASX: COL) appears to have a fruitful future ahead, with healthy FY19 results including a 25.6% increase in assets, a 30% increase in Coles online sales and supermarket customer satisfaction at 87.8%.
If you are considering investing in either Woolworths Group Ltd (ASX: WOW) or Coles Group Limited (ASX: COL), the FY19 results indicate the two are neck and neck. However, Coles’ recent price cutting campaign combined with their newly implemented cost cutting plan has resulted in 11% growth in September alone and we believe this growth may continue into the future.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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