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Coles sales pressured by tough competition

AAP logoAAP 25/10/2016 Petrina Berry

Supermarket giant Coles' sales growth has eased for a third consecutive quarter amid stiff competition from Woolworths and Aldi.

Parent company Wesfarmers' chief executive Richard Goyder says the supermarket sector's growth has slowed as people spend less and competition intensifies.

"We have expected for some time that Woolworths would increase its competitive intensity and Aldi is a very competitive business and the independents will be fighting hard as well," Mr Goyder said at Wesfarmers' first quarter results announcement on Wednesday.

"It's a competitive market. That will be the case for a long time."

Coles disappointed the market with substantially weaker sales growth for the first quarter of 2016/17.

Coles' food and liquor sales rose 2.9 per cent to $7.85 billion, compared to 3.5 per cent growth in the preceding quarter.

The supermarket giant's comparable food and liquor sales - a key measure of revenue growth which removes one-off events - increased 1.8 per cent on the prior corresponding period.

Comparable food sales increased 1.7 per cent for the quarter, while food and liquor prices fell one per cent on average.

The comparable sales were weaker than the 2.8 per cent (food and liquor) and 2.9 per cent (food) comparable growth recorded in the fourth quarter of 2015/16 where price deflation was at 2.4 per cent.

It was also the third consecutive quarter of slower growth.

optionsXpress market analyst Ben Le Brun said Wesfarmers share price fell largely due to Coles' weak performance.

"Coles is Wesfarmers' core business and the sales numbers missed even the most negative forecasts," he said.

"How much market share Aldi is taking will become evident when Woolworths reports its quarterly results on Friday."

He said if Woolworths' numbers disappoint, it would indicate Aldi is luring more shoppers away from the big two - something that would only intensify the retailers' price war.

Woolworths is expected to unveil a small lift in sales growth after it reported a 0.3 per cent rise in sales for the first eight weeks of the year.

Coles Managing Director John Durkan described Coles' latest growth figures as satisfactory.

He said Coles had about 4,000 items on lower "every day" prices and fresh produce was a key sales driver.

Wesfarmers' hardware business Bunnings lifted quarterly sales 7.4 per cent to $2.7 billion.

Kmart's sales jumped 11.2 per cent to $1.2 billion, while Officeworks' sales rose 7.5 per cent to $461 million.

But Target continued its disappointing performance with its sales falling 17.1 per cent to $643 million.

The group's petrol and convenience store sales also continue to weaken with comparable fuel sales down 13.7 per cent to $1.5 billion.

Wesfarmers' resource division has been propped up by better coal prices.

The group maintained previous full-year guidance for its coal sales volumes for its Curragh mine in Queensland at between 8.0 and 8.5 million tonnes.

Due to the production disruptions experienced during the quarter, sales volumes are expected to be weighted towards the second half of the financial year.

Wesfarmers' share price closed down 5.7 per cent, or $2.51, at $41.45 on Wednesday.

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