Coles CEO Justifies Profit Amid Cost of Living Crunch

File photo of a Coles supermarket in Sydney, Australia. (Janita Kan/NTD)

The CEO of Coles Group has defended the supermarket chain’s right to earn a profit, arguing that the same cost of living crunch affecting customers is impacting the company’s earnings.

Coles’ sales revenue was up 6.8 percent to $22.2 billion (USD $14.5 billion) during the 27 weeks ending on Dec. 31. However, its profit dropped by 3.6 percent to $594 million compared to the same period last year.

Coles CEO Leah Weckert said the supermarket makes $2.60 for every $100 spent in its stores, a figure that has remained unchanged for five years.

“Profits are an essential thing for any business,” she said, amid an industry-wide government inquiry into pricing practices.

“They enable us to continue to operate, and that means we get to continue to employ 120,000 people.”

Ms. Weckert highlighted Coles’ significance as one of the top 100 taxpayers in Australia and its dividend payments to 440,000 shareholders, with 80 percent owning less than 2,000 shares.

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“They are mums and dads and families and retirees that are benefiting from these dividend payments,” she said, as Coles shares hit a six-month peak at $16.75, while the dividend remained unchanged at 36 cents per share.

Contrary to the CEO’s optimistic dividend outlook, a recent survey revealed that 90 percent of shoppers experienced financial distress, particularly with concerns about rent or mortgage payments last month.

“For groceries, nearly all customers said they were taking active steps to budget on their food bill. They continue to seek more specials, seek loyalty offers, and use catalogues and apps to help manage their grocery costs,” Ms. Weckert said.

“They are making more home-cooked meals, cooking in batches, and weekly meal planning to help stretch their budgets further.”

Coles Profits Drop on Higher Expenses: CEO

She attributed Coles’ profit decline to increased expenses, primarily higher lease and borrowing costs, in line with rising living expenses.

“Just like households that are paying higher interest rates on their mortgages, we are paying higher levels of interest on the debt that we pay to operate the business,” Ms. Weckert said.

Addressing accusations of price gouging, she argued that overall food inflation had stabilised, with lower prices for fresh produce and meat, though dairy prices remained high.

Ms. Weckert also said that food inflation in Australia was partly because import prices have increased due to the Ukraine conflict impacting wheat prices.

“And that is what has flowed through and led to the invasion and higher prices going to customers,” she said.

Further, she refuted that Coles operates within a duopoly alongside Woolworths.

She said Coles encounters fierce competition not only from Woolworths but also from other major players like Aldi, Costco, and Amazon, as well as independent supermarkets and various retailers like Chemist Warehouse, Priceline, and Bunnings, all offering similar products to Coles.

“From my perspective, it is a competitive market; we are having to work hard every day to work out how we attract customers into our stores,” she remarked, noting her husband had recently purchased items from Amazon, which she said were “thankfully not food items.”

Calls for Price Reductions

However, the Australian Council of Trade Unions assistant secretary Joseph Mitchell demanded the chain reduce prices following its profit announcement.

“It’s well past time for Coles and Woolies to be passing on the benefits they’ve received in falling inflation,” he said.

It comes as economist Jim Stanford said there is “no doubt” Coles is making more profit than necessary to cover its own expenses.

“And both the volume of their profits and the rate of profits that they’re earning have increased since the pandemic. So profit taking by Coles has certainly contributed to food price inflation in Australia,” he said.

He argued that there is no need for a 30 percent profit rate in a relatively low-risk and predictable business such as Coles, suggesting its current profits should be lower.

“I'd like to see some of it taxed back in the form of excess profits taxes that are then redistributed to consumers to help pay for those groceries,” he said.

“And I'd like to see parts of the industry, if necessary, broken up and sold off to other companies that will be more aggressive in competing to try to bring prices down.”

However, Motley Fool Chief Investment Officer Scott Phillips argues Coles is not at fault.

“I don’t think there’s obvious evidence there is wide-scale price gouging or their margins are unreasonable,” he said.

“At the end of the day, any business wants a return on the capital that’s being employed to produce the goods and services that we want.

“We don’t want them making so much money that the rest of the country is poorer as a result. On the other hand, we do want enough of an incentive for these guys to actually stay in business and do something for us.”