Highlights

  • Coles Supermarkets delivered comparable sales growth of 3.6% in Q3 FY2026, described as above market, with volume-led growth excluding tobacco of 5.7%.
  • eCommerce sales grew 24.8% in the quarter, with penetration increasing to 13.6% of Supermarkets sales revenue, reinforcing the company's digital channel investment.
  • Liquor comparable sales declined 4.3%, with management flagging flow-on impacts to Liquor earnings in the second half reflecting reduced fixed cost fractionalisation.

 

Coles Group Limited (ASX:COL) is one of Australia's two major supermarket operators, alongside Woolworths. The company operates supermarkets, liquor retail stores under the Liquorland, First Choice, and Vintage Cellars brands, and a range of adjacent services including financial services and fuel. Listed on the ASX in November 2018 following its demerger from Wesfarmers, Coles has undergone a sustained period of operational improvement under its current leadership team. The third-quarter FY2026 sales results cover the 12 weeks from 5 January to 29 March 2026 and were released in April 2026, providing investors with an update on the trajectory of the company's largest divisions heading into the final quarter of the financial year.

Q3 FY2026 Sales Performance: Supermarkets Outperforms

Coles Group reported total Group sales revenue of $10,703 million for the third quarter of FY2026, up 3.1% from $10,379 million in the prior corresponding period. The headline figure was shaped by a divergence between the company's two main divisions: Supermarkets performing above market and Liquor experiencing a meaningful pullback. Supermarkets delivered sales revenue of $9,781 million, up 4.0% in total and 3.6% on a comparable basis, with management characterising the result as above market and consistent with execution demonstrated over multiple years. Liquor reported sales revenue of $781 million, a decline of 3.9% in total and 4.3% on a comparable basis. The Other segment, which includes financial services and fuel, was $141 million, down 14.5%.

The Supermarkets result was characterised by volume-led growth rather than price-driven expansion. Excluding tobacco — which is subject to significant regulatory-driven price escalation that inflates headline sales metrics — Supermarkets growth was 5.7% on a comparable basis, a notably healthy figure that reflects genuine basket size and transaction volume improvement. This distinction between tobacco-inclusive and tobacco-exclusive growth rates is important for analysts seeking to understand the underlying health of the grocery business as consumer spending patterns evolve.

eCommerce: Scale and Penetration Momentum

One of the most significant strategic data points in the Q3 FY2026 update was the continued expansion of eCommerce. Coles reported eCommerce sales growth of 24.8% for the quarter, with penetration of total Supermarkets sales revenue increasing to 13.6%. This penetration rate represents a meaningful increase from prior periods and reflects the cumulative benefit of the company's multi-year investment in its digital ordering, fulfillment, and delivery infrastructure, including the Witron-automated customer fulfillment centres.

For a traditional bricks-and-mortar grocery retailer, eCommerce penetration of 13.6% is a commercially significant milestone. eCommerce customers tend to have larger basket sizes and higher loyalty characteristics than purely in-store shoppers, and the channel provides an avenue for personalised marketing and promotional activity through digital platforms. However, eCommerce also carries different cost structures — including picking, packing, and last-mile delivery costs — which means that profitability per eCommerce transaction is a key variable that the market monitors alongside growth rate. Management has not provided detailed eCommerce profitability commentary in the quarterly sales update.

Consumer Behaviour: Trading Down and Cooking at Home

CEO Leah Weckert's commentary on the Q3 outlook framed the consumer environment in terms of customers managing household budgets by shifting from eating out to cooking at home. This trend — observable in grocery data more broadly during periods of elevated cost-of-living pressure — supports Supermarkets volumes and reinforces the relevance of Coles' own brand portfolio as a value proposition. Own brand products generate higher gross margins for the retailer while delivering a price advantage to the consumer, creating a structural incentive to develop and expand own brand ranges during inflationary periods.

Customer satisfaction metrics improved across both Supermarkets and Liquor during the quarter, a metric that Coles tracks as a leading indicator of customer retention and share-of-wallet. While satisfaction improvements in Liquor are constructive, they have not yet translated into a halt to the comparable sales decline, suggesting that the category is facing headwinds that are more structural — related to consumer sentiment and discretionary spending patterns — than operational.

Liquor Division: Ongoing Pressure and Earnings Risk

The Liquor division's comparable sales decline of 4.3% in Q3 FY2026 followed a softening in consumer sentiment observed specifically in March 2026. Management's guidance commentary was notably specific in flagging flow-on impacts to Liquor earnings in the second half of FY2026, attributing this to reduced fixed cost fractionalisation — meaning that lower sales volumes spread a fixed overhead base across fewer transactions, compressing the earnings per unit. This is the leverage effect that characterises high fixed-cost retail formats when volumes decline.

The Liquor decline is relevant at the Group level because, while Supermarkets is the dominant earnings contributor by a significant margin, Liquor's fixed cost base means that even modest volume shortfalls have a disproportionate impact on divisional earnings. Analysts will be looking for the degree to which second-half Liquor earnings are impacted when the full-year FY2026 results are published, particularly given that Weckert's commentary suggested the trend observed in March extended into the early weeks of Q4.

Cost Pressures and Supplier Dynamics

The outlook commentary from management also flagged an increase in supplier cost price increase requests in recent weeks, alongside higher costs within Coles' own operations particularly in fuel, freight, and packaging. Geopolitical tensions were cited as contributing to elevated commodity input costs. The company stated it is actively managing these pressures and will mitigate impacts where possible while balancing the needs of customers and suppliers — language that indicates Coles is unlikely to fully pass through input cost increases to shelf prices in the short term, given the competitive and political sensitivity around grocery pricing in Australia.

Conclusion

Coles Group's Q3 FY2026 update presents a mixed but broadly constructive picture. Supermarkets delivered above-market comparable growth of 3.6%, with volume-led momentum and eCommerce penetration continuing to advance toward institutionally significant levels. Customer satisfaction improvements across both divisions reflect the consistent execution of a value proposition that resonates with cost-conscious Australian consumers. The near-term challenge is the Liquor division, where consumer sentiment softness and the flow-on earnings impact of lower volumes will weigh on second-half Group results. Investors following COL will be closely watching the full-year FY2026 result for confirmation of whether the Supermarkets outperformance is sufficient to offset Liquor headwinds and whether the flagged input cost pressures have been managed without meaningful shelf price escalation.