Australia’s Coles flags higher costs as inflation bites

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Retailers globally have warned that rising energy, fuel and ingredient costs will continue to reflect in higher price tags as they strive to protect their margins, even as shoppers switch to lower-priced goods amid a cost-of-living squeeze.

The Melbourne-based retailer said capital expenditure is expected to be between A$1.2 billion ($829.32 million) and A$1.4 billion in fiscal 2023, compared with a net capex of A$1.14 billion this year.

The cost of doing business as a percentage of sales increased by 50 basis points to 21.4% in 2022 due to higher fuel costs and underlying cost inflation, Coles said.

“Consistent with our suppliers and customers, we are also seeing inflationary pressures impacting our own cost base with increasing wages, rent, fuel, supply chain and capital costs,” the company said in a statement.

The over 100-year-old company incurred A$240 million in COVID-related costs, compared with about A$130 million last year.

It posted a 4.3% rise in profit to A$1.05 billion for the year ended June 30, boosted by online sales as people stocked up on essential items during extended lockdowns in the first half of the year.

The retailer also declared a final dividend of 30 Australian cents per share, compared with 28 cents last year.

Coles and bigger rival Woolworths, which collectively sell about two-thirds of Australian groceries, benefited initially from a rush of “pantry loading” as pandemic-related restrictions prompted people to spend more time at home.

Coles said it has increased the capital expenditure for its Witron and Ocado (LON:OCDO) projects.

($1 = 1.4470 Australian dollars)