Can Coles differentiate their business with an improved food offer?
As outlined in the Coles Investor Day 2019 Coles strategy is to:
- Inspire Customers through best value food and drink solutions to make lives easier
- Smarter Selling through efficiency and pace of change
- Win Together with our team members, suppliers and communities
Some recent examples of how Coles will Inspire Customers through best value food and drink solutions to make lives easier include:
26th July – launched Barista Almond Milk, a non-dairy milk with a nutty taste.
9th August – decided to range hot cross buns all year round.
13th August – officially opened the ‘store of the future’ in Glen Waverley, VIC. This innovative convenience store has an increased range of fresh and gourmet foods.
15th August – launched Nature’s Kitchen. Range of 20 plant-based (meat alternative) food products.
20th September – decreased prices on over 300 food and drink products.
2nd October – opened refurbished Tooronga store , with first ever food hall. The food hall includes a café and sushi restaurant.
These recent examples highlight Coles strategy to differentiate their business with an improved food offer. Everything from ranging innovative SKUs to totally re-designing store formats are being rolled out to improve their food offer.
Strategically, Coles are trying to create a niche for themselves. New entrants, such as Aldi = hard discounter and Costco = big box retailing, focus on a niche. Now, Coles want to position themselves as different to other full-service supermarkets, i.e. Woolworths. Looking forward, Coles are also positioning themselves to be different to new entrants, such as Kaufland.
Coles Previous Food Differentiation
Coles has already been using a food differentiation strategy. Some examples of Coles food differentiation include:
- 2011 100% of Coles Beef was HGP (Hormone Growth Promotants) free. As highlighted by SMH not everybody in the beef industry supported this initiative.
- 2013 Coles removed Coles branded / private label caged eggs from its range (Aus Food News)
- 2014 100% of Coles Brand Fresh Chicken was RSPCA Approved (Aus Food News)
Long term share changes (detailed below) highlight this strategy did not grow share. Mainly due to continued expansion, Aldi has grown their share the most during the last 10 years.
Supermarket Market Share
Source: Roy Morgan (Supermarket Sweep: Aldis share of aussie market still rising)
2015 All Coles Brand seafood sustainably sourced.
The following Fresh Seafood Sales chart again highlights that this product differentiation strategy has not grown share.
Fresh Seafood Sales Share
Source: Roy Morgan, Woolworths extends lead over Coles in seafood, Nov 2018
Coles previous food differentiation strategy did not dramatically increase sales / share for the business. It is therefore highly unlikely continuing this strategy will dramatically increase sales / share for the business. Steven Cain, current Coles CEO, is aware of this and has stated:
“Maintaining, or growing our share … would be a terrific result given the competition we face.”
Source: SMH
So, the goal of this food differentiation strategy is to maintain current sales / share and build long term brand loyalty to Coles supermarkets. As reported by Inside Retail Steven Cain, current Coles CEO, has stated:
“The next five years are going to be the toughest we have faced as a company and the toughest the industry will face”
Aldi vs Coles vs Woolworths Food Quality
The following results are from Canstar Blue Supermarket Satisfaction Surveys. In 2019 almost 3,000 shoppers were surveyed. This independent research is being presented to determine whether Coles previous food differentiation strategy has changed shoppers’ perception of Coles offer.
The 2019 survey highlighted that ‘Freshness of Fruit, Vegetables and Meat’ was the second major factor driving shopper satisfaction (17%). ‘Value for Money’ (22%) was the main reason.
Canstar Blue Star Rating for:
Freshness of Fruit, Vegetables and Meat
Source: Canstar Blue 2019, 2018, 2017, 2016, 2015
Surprisingly shoppers still rate Aldi as better or equal to Coles ‘freshness of fruit, vegetables and meat’. As reported by SMH, Aldi started to roll out their new store format in 2016. The new layout increased floor space for fresh food from 15% to 25%. As reported by news.com.au, at the same time Aldi changed their fresh produce buying (from regions to national). The new centralised buying approach and store layouts appear to have reinforced a positive perception of Aldi’s fresh food offer vs the market.
The 2019 survey highlighted that ‘Quality of Private Label’ was the seventh major factor driving shopper satisfaction (10%). NB Private Label includes all products, not just food SKUs.
Canstar Blue Star Rating for:
Quality of Private Label Products
Source: Canstar Blue 2019, 2018, 2017, 2016, 2015
Logically, Aldi received a 5 star rating due to their business model focusing on private label. Importantly there has not been a dramatic change in shoppers’ perception of the quality of Coles private label offer. Obviously, food is only part of the overall private label offer. Food differentiation initiatives, such as all Coles Brand seafood being sustainably sourced, does not appear to have changed shoppers perception of the quality of Coles private label offer.
This independent research suggests Coles previous attempts to differentiate their food offer has not changed Australian shoppers perception of their food offer.
Woolworths The Fresh Food People
After a difficult trading period, including paying no final dividend in 1986, Woolworths needed to change their strategy. In 1987 ‘the fresh food people‘ business model was launched. Simply put this model focused on Woolworths delivering ‘the freshest food and the best range at the lowest prices’ (Perishable Pundit). Other projects, such as the 1999 Project Refresh, also had a similar goal for Woolworths Australian supermarket business. Even today, it is a priority for Woolworths to ‘differentiate our Food customer propositions’. This food differentiation strategy has been very important for Woolworths to create successful results for decades.
Some may argue that Coles is now trying to beat Woolworths at their own game – food differentiation.
After exiting the Masters hardware business in 2016 Woolworths has enjoyed a ‘resurgence’ in Australian Food retailing. For example. Woolworths recent Q1 2020 sales results highlighted Australian Food sales growth of 7.8% (comparable 6.6%). In comparison Coles achieved sales growth of 1.8% (comparable 0.1%).
The long and short term results of Woolworths Australian Food business highlight the success they have achieved by utilising a food differentiation strategy.
Summation
The Australian grocery industry has changed during the last 20 years. New entrants, such as Aldi (hard discounter) and Costco (big box retailing), have already increased competition and dominate a niche. Looking forward, competition will continue to increase from other, well resourced, international players, including Amazon and Kaufland. Therefore, Coles has to respond to this increased competition with a compelling offer for shoppers. They plan to build long term customer loyalty with a food differentiation strategy.
Past results highlight the challenge to Coles implementing a successful food differentiation strategy in the future. Other retailers, such as Aldi and Woolworths, have already succesfully implemented their food differentiation strategies in Australia. These long-term initiatives have helped them maximise their sales / share and loyalty with shoppers. Looking forward, new entrants such as Kaufland, will also have a strong food offer.
Coles need to focus their food differentiation tactics on their current customers. As outlined in the Coles Investor Day 2019 presentation Coles need to be ‘customer obsessed’ with their customers just to maintain their current sales / share. Steven Cain, current Coles CEO, is aware of the increased competition and the challenges of creating and implementing a new long food differentiation strategy.
Good luck to the team at Coles and their suppliers.
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.
Thank you,
Tim Bowen
