Belgian retailer Colruyt Group has had a disappointing last half-year, as sales only grew because of price increases while volumes fell. The retailer was not able to fully pass the sharply increased costs onto consumers, halving profits.
Lowest price guarantee
In the first half of the 2022/23 financial year, Colruyt Group saw sales rise by 5.7 %, but that is only as prices increased more than volumes dropped. At the same time, the company’s operating costs are rising significantly due to higher energy tariffs, transport costs and wage indexation – the biggest impact of which is yet to come.
Because Colruyt sticks to a lowest-price guarantee in its main store format, the retailer cannot fully pass on these increased costs to customers, and this weighs on margins. Operating profit fell to 123 million euros (2.3 % of sales), net profit fell to 89 million euros (1.7 % of sales). That means margins have halved, which is a lot worse than what analysts had expected.
No market share gains
The discounter does not gain market share in this period of fierce price competition: the market share in Belgium of the supermarket formulas Colruyt Lowest Prices, OKay and Spar together remained almost stable at 30.9 %. At Colruyt, sales rose by 2.6 %, while at OKay, Bio-Planet and Cru, business fell by 2.6 %.
Wholesale sales increased by only 1.3 %, indicating that Spar neighbourhood supermarkets are also facing strong volume declines. Online sales – mainly through shopping service Collect&Go – now account for 7 % of retail sales. In France, sales rose 10.7 %. In non-food, sales went up 22.1 %, mainly thanks to the expansion of bicycle retail chain Bike Republic. Foodservice grew 38.5 %: here, volumes did increase.
In short, Colruyt is struggling in these exceptional times and improvement is not immediately in sight: “The months to come will remain very challenging, with gloomy macroeconomic forecasts that will further affect consumer spending patterns”, CEO Jef Colruyt agreed.
The retailer expects its year-on-year result to fall in the same magnitude in percentage terms as in the first half of the financial year.