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UBS supplier survey: Woolworths leads, Coles closing the gap in Australian supermarkets

According to the 34th UBS Supermarket Supplier Survey, Woolworths (ASX:WOW) maintains its lead over Coles (ASX:COL) in the Australian supermarket industry. The survey, conducted from 6-Jun-23 to 9-Jul-23, featured FMCG players providing insights on current trading and the outlook for the next 12 months. Suppliers rated COL and WOW across 26 subcategories on a scale of 1-10. Key findings from the survey include:

Recent Trading: Woolworths won the trading period of 4Q23E, although the number of suppliers who believed WOW had the upper hand decreased slightly compared to previous surveys. Coles saw an increase in suppliers’ perception of its trading performance.Market Share Outlook: Aldi is best positioned to gain market share in the next 6 months, while IGA is expected to lose market share. Coles and Woolworths are less likely to experience market share losses compared to the previous survey.Market Growth: The market is projected to grow by approximately 2.8% in the next 12 months, driven by population growth, a shift from out-of-home to at-home consumption, and moderating food inflation.Inflation: Inflation expectations have moderated but remain elevated. Suppliers anticipate 4.8% price inflation and COGS inflation in the next 12 months. Inflation is expected to impact volumes and prompt consumers to trade down to smaller pack sizes, private label products, or Aldi.Supply Chains: Supply chains are normalising, with case fill and delivered-in-full-on-time (DIFOT) rates returning to pre-COVID levels for some suppliers. However, 71% of suppliers have not fully recovered, and supply chains are at 89% of pre-COVID levels on average.Survey Findings: Woolworths leads Coles across 25 of the 26 subcategories, although Coles has narrowed the gap compared to previous surveys. Coles showed improvements in various areas, including in-store, strategic, tactical, and cultural aspects.The outlook for Australian supermarkets remains positive, supported by population growth, the shift in consumer behaviour, and elevated food inflation. Rising labour costs and tax changes present challenges, but Woolworths, Coles, and Metcash are considered better positioned than other retail and consumer companies. The survey results provide insights into the performance and dynamics of the Australian supermarket industry.

Note: This report has been prepared by UBS Securities Australia Ltd. Investors should consider this report as one factor in their investment decision-making process.