Supermarket giant Coles Group (ASX: COL) has reported unprecedented growth in its March quarterly results underpinned by customer panic buying in the wake of COVID-19.
The retailer’s supermarkets division posted a 13.8% jump in sales for the period to $8.2 billion, while group revenue increased by 12.9% to $9.2 billion.
Supermarkets performed strongly in January and February, prior to the impact of COVID-19, and achieved comparable sales growth of 13.1% for the third quarter – Coles’ 50th consecutive quarter of comparable sales growth.
Additionally, Coles Own Brand products achieved sales growth of 15% in the quarter and sales contribution of 30% by the end of the period.
In late February, sales were boosted by panic buying across the board due to rising concerns about COVID-19, which continued throughout March.
From early March, unprecedented demand for grocery, health and home products led Coles to begin placing product limits per customer in certain categories.
During this period, the supermarkets division experienced strong transaction and basket size growth driven by social distancing regulations and a growing number of customers working, and spending more time at home.
This led to a greater consumption of meals at home and demand for household items such as toilet paper, meat and tinned foods.
During the height of COVID-19 panic buying, restrictions were placed on a number of categories including toilet rolls, hand sanitiser, pasta, rice and minced meat.
The company said restrictions were gradually being lifted as demand reduces and supply improves.
Coles recorded inflation (excluding tobacco and fresh foods) of 1.8% during the quarter with overall inflation from supermarkets division of 2.6% as unprecedented demand and uncertainty of supply led to a lower promotional mix.
Inflation was seen across all categories particularly dairy, deli and meat, with the latter being a result of a break in drought conditions and increased availability of feed, causing farmers to restock their herds and thus, limiting supply.
While Coles Online sales including home delivery and click-and-collect services were temporarily suspended in mid-March, the launch of an online priority service focused on the delivery of groceries to needy and vulnerable groups during isolation helped maintain sales volumes, albeit at a slower rate.
As a result of the temporary disruption and modified purpose, Coles Online sales growth for the quarter slowed to 14%.
The company said it has started to increase its capacity by recruiting more team members and extending and increasing pick and delivery shifts, leading to additional pick capacity and delivery slots for customers.
In an effort to meet strong customer demand, Coles worked closely during the period with supply chain partners to ensure speedy delivery of stock to its stores.
Three pop-up distribution centres were opened in New South Wales, Victoria and Queensland to increase capacity in each state.
Coles also invested in its customer service capability, hiring an additional 12,000 staff to ensure improved stock replenishment during the COVID-19 period.
Prior to the onset of COVID-19, the liquor market remained subdued as customer drinking habits were impacted by bushfire smog and subsequent floods in NSW and Queensland.
Over the quarter, Coles said there was a strong growth in spirits purchases, offset in part by lower volumes and beer and ready-to-drink categories during January, when bushfire smog impacted air quality.
The liquor division achieved sales revenue of $740 million, compared to $697 million for the previous corresponding period and representing a 6.1% change and 7.2% comparable sales growth.
The impact on sales began to “materially elevate” in late March following the federal government’s decision to close hotels, pubs, clubs and licenced venue operators, which in turn led to the division placing limits on products per customer.
Incremental costs incurred to support strong demand were largely consistent with supermarket costs and included in-store service, cleaning and security.
Liquor also experienced margin deterioration during the period as customers showed a preference for spending on more bulk and value-oriented products.
The division opened two new stores during the quarter and closed six, bringing its total national network to 913 retail liquor sites.
Coles Express convenience stores recorded a 5% uplift in sales during the quarter as a result of panic buying trends.
Sales revenue of $256 million was posted for the period compared to $243 million in 2019, and representing 4.3% comparable growth.
However, this was offset by lower fuel volumes in late March with less road traffic due to social distancing measures requiring people to largely remain at home.
While weekly fuel volumes peaked at approximately 70mL during the quarter, Coles Express exited the quarter at approximately 50mL per week.
Coles Express opened one new site during the quarter and closed three, bringing its total national network to 711 sites.
In the first four weeks of the July quarter – which included the Easter period and ANZAC Day – comparable sales growth for Coles’ supermarket division has broadly trended back toward the levels seen before COVID-19.
During this period, the group has seen an increase in basket size which has been partially offset by a decline in transactions driven by social distancing measures.
Coles was conservative in its outlook for the remainder of the year, with gross operating capital expenditure for the 2020 financial year expected to be in the range of $750 million to $850 million.
“As more customers either work at home or stay at home, there is early evidence of customers changing their habits, purchasing less convenience and impulse products and moving towards more cooking and baking from scratch,” the company said.
“Depending on the extent or timing of existing or future government measures, it is unclear how long the various impacts of COVID-19 may continue to impact the business … [but] we will continue to review operational and strategic learnings and opportunities that accelerate delivery of our long-term plan,” it added.
At mid-morning, shares in Coles were trading 2.96% lower at $15.75.