Australian grocer Coles sees Q3 inflation ease, but pressure remains By Reuters

© Reuters. FILE PHOTO: A woman walks in the fruit and vegetables section at a Coles supermarket in Sydney, Australia, February 20, 2018. Picture taken February 20, 2018. REUTERS/Daniel Munoz/File Photo

By Byron Kaye and Roushni Nair

SYDNEY/BENGALURU (Reuters) – Australian No. 2 supermarket chain Coles Group (OTC:) Ltd on Friday said store price inflation eased in the March quarter as supply chain blockages improved, but flagged a surge of demand as living cost pressures lead to more people eating at home.

The trading update from one of Australia’s biggest retailers gives a sense of an economy still struggling to contain inflation even as its central bank slows the pace of rate hikes. Coles and larger rival Woolworths Group Ltd ring up two-thirds of Australian grocery sales and are seen as bellwethers of consumer behaviour.

Coles said supermarket sales jumped 7% in the third quarter to A$8.6 billion ($5.7 billion), better than analysts forecast, as it passed wholesale costs to shoppers. Total supermarket inflation slowed to 6.2% from 7.7% three months earlier, when flooding elevated fresh produce costs.

The company, which did not disclose earnings, said it was receiving fewer requests from suppliers to put up prices than the previous quarter but it expected persistent demand as spiralling energy and mortgage costs, as well as rising immigration, brought shoppers to its 841 supermarkets.

CEO Steven Cain, who retires this month, said on an analyst call there was “still a lot of Uber (NYSE:) Eating going on” but he expected a shift to grocery shopping in the next three to six months as higher interest rates and energy prices change behaviours.

Coles shares were down about 2% by midsession as analysts questioned its ability to benefit from fragile economic conditions.

“Inflation has moderated slightly … as expected but remains at high levels,” Jefferies analysts said in a client note.

E&P Financial said that despite increased sales, Coles’s profit margins may be impacted by stock losses related to supply chain problems and store theft.

($1 = 1.5085 Australian dollars)

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