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Coles Group Attempt To Awake A Price War

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

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 group - report
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.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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