Over the past year Coles has comprehensively outperformed rivals Woolsworth in the Australian market. In 2015 Coles boasted sales up 3.9% in the food and liquor sector. Coles were extremely intelligent in the pricing of their products. Planning for the long term, they decided to reduce the prices of foods and liquor by 1% in the fourth quarter last year. Woolworths was slow to react to the swiftness and decisiveness of Coles as can be in their quarter prices of their food products. Their prices were still rising by 1.7%! (Thieberger 2015, para. 2).
Now we as consumers are always looking for the most value for money, am I right? Especially when it comes to shopping for our groceries or household items we are incredibly price sensitive. So while Woolworths was increasing their prices, they lost more of their market share to an already dominant Coles. Sales for Woolworths went down by 0.7% in the fourth quarter of 2015 even though they eventually tried reducing their prices themselves realizing their folly (Thieberger 2015, para. 3).
The genius of Coles reducing their prices was that after they managed to attract the customers into their stores, the customers would essentially end up purchasing products that were not on discount as well rather than completing their shopping at another supermarket. This is reflected in the Coles earnings rising by 6.6% to $1.7 billion for 2015 (Thieberger 2015, para. 8).
This does not look like changing any time soon with Coles continuing to dominate the supermarket and liquor sectors. This year Woolworths have invested a reported $700 million in their attempt to reduce the prices of their products and improve the service provided in the stores. They are desperately trying to improve their market strategy while simultaneously trying to revive their department store brand Big W. Coles have taken advantage of a clearly distracted Woolworths to seize the initiative and become the undisputed market leaders. As a consumer myself I consistently find myself at Coles for my weekly grocery shopping and I continue to see Coles have the better value for money than Woolworths (Mitchell 2016, para. 2).
In the Third quarter this year Coles have invested an additional $150 million into reducing prices of products such as Kleenex tissues and house brand fruit juice. As a result of this it has now been 27 consecutive quarters that Coles have now got the better of Woolworths. Consumers seem to prefer the EDLPs (Every Day Low Prices) provided by Coles than those products offered by Woolworths at slashed prices. Perhaps the most worrying aspect for Woolworths is that Coles have started to drastically improve their liquor sales. For a long time Woolworths has always had the edge in this sector but the times seem to be changing with this regard (Knight 2016, para. 5)
A UBS broker recently stated that if Woolworths fail to restore their sales at the end of this year, it could lead to full on price war with Coles. UBS defines a price war as irrational promotional intensity aimed at winning market share and countering the growth of rivals, where price investment is matched or exceeded by rivals, driving down industry profits at an accelerating rate (Mitchell 2016, para. 3).
Can you imagine that as a consumer? Woolworths taking on Coles in attempting to provide us, the customers with lower prices? Is this a bad thing? Well as a consumer I think not! Although it is still some time away before such an event were to occur, all we can do is wait see how this interesting battle for a dominant share in the unfolds.
If you would like to read more on product pricing strategies, you can check out the link here.
Thieberger, V 2015, How Coles is crushing Woolworths in the price war, The Australian Business Review, retrieved 20 August 2015, <http://www.theaustralian.com.au/business/business-spectator/how-coles-is-crushing-woolworths-in-the-price-war/news-story/e42c5d790997db89461923a185873b45>.
Mitchell, S 2016, Woolworths woes spark full-blown supermarket price war with Coles, Aldi, Sydney Morning Herald Business Day, retrieved 4 April 2016, <http://www.smh.com.au/business/retail/woolworths-woes-spark-talk-of-fullblown-supermarket-price-war-with-coles-aldi-20160403-gnxikd.html>.
Knight, E 2016, Woolworths falls further behind Coles in supermarket race, Sydney Morning Herald Business Day, retrieved 21 April 2016, <http://www.smh.com.au/business/retail/woolworths-falls-further-behind-coles-in-supermarket-race-20160421-gobpp8.html>.
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