Highlights

  • Macquarie Research maintains an Outperform rating with a target price of A$24.10
  • Supermarkets sales grew 4.0%, with comparable growth of 3.6% in 3Q26
  • eCommerce sales surged 24.8%, with penetration rising to 13.6%

Coles Group (ASX:COL) has delivered a solid third-quarter FY26 trading update, showing continued momentum in its core supermarket Business despite an increasingly complex cost environment. The update highlights stable Demand patterns, improving digital penetration, and disciplined operational execution, even as inflationary pressures begin to re-emerge across Supply chains.

The share price has reflected this stability, with Coles continuing to trade as a defensive retail exposure within the Australian Equity market. However, rising input costs and moderating sentiment in parts of the business are shaping investor expectations for the remainder of FY26.

With Macquarie Research maintaining an Outperform rating and a target price of A$24.10, the stock remains positioned within a stable Earnings narrative, though near-term Margin dynamics are becoming more closely watched.

Broker View Anchored in Defensive Earnings Stability

Macquarie’s Outperform rating on Coles Group reflects confidence in the company’s consistent supermarket execution, strong supply chain capabilities, and resilient demand profile.

The broker view appears anchored in Coles’ ability to deliver steady comparable sales growth over multiple years, supported by structural demand for grocery Retailing and increasing digital channel adoption.

In retail equity analysis, supermarkets are often assessed on Volume stability, pricing discipline, and operational efficiency. Coles continues to demonstrate strength across these dimensions, particularly in its core food retail segment.

Supermarket Segment Continues to Drive Growth

The supermarket division remains the primary earnings engine for Coles Group, delivering sales Revenue of A$9.78 billion in 3Q26, representing growth of 4.0% year-on-year.

Comparable sales growth of 3.6% indicates sustained underlying demand, supported by volume expansion excluding tobacco of 5.7%.

This suggests that growth is not purely price-driven but also reflects increased customer activity and basket expansion. Management has also highlighted improved availability and execution across store operations, which continues to support Market Share retention.

The supermarket segment remains structurally resilient, benefiting from population growth, shifting consumption patterns, and increased at-home food consumption trends.

eCommerce Expansion Strengthens Digital Positioning

One of the more notable features of the update is continued acceleration in online sales.

eCommerce sales increased by 24.8%, with penetration rising to 13.6% of total supermarket sales.

This reflects ongoing structural changes in consumer shopping behaviour, with digital grocery adoption continuing to expand across urban and suburban markets.

The growth in online channels also supports Coles’ broader omnichannel strategy, improving customer engagement while increasing operational complexity across fulfilment and logistics networks.

While eCommerce typically carries different margin characteristics compared to in-store sales, its expansion enhances customer retention and long-term competitive positioning.

Liquor Segment Under Pressure From Sentiment Weakness

In contrast to supermarkets, Coles’ Liquor division reported weaker performance, with sales declining 3.9% to A$781 million.

Comparable sales declined by 4.3%, reflecting softer consumer sentiment and changing discretionary spending patterns.

Management has indicated that margin pressures may persist due to reduced Fixed Cost absorption, particularly if trading conditions remain subdued in the second half.

This divergence between food and discretionary categories highlights the defensive nature of Coles’ core business, while also underscoring exposure to cyclical consumer spending in non-essential retail segments.

Cost Pressures Re-Emerge Across Supply Chain

Despite stable revenue growth, Coles has flagged increasing cost pressures across its operations.

Rising fuel, freight, and packaging costs are beginning to affect input cost structures, while suppliers are also seeking price increases in response to broader inflationary trends.

These dynamics introduce potential margin pressure, particularly if cost increases cannot be fully passed through to consumers without affecting demand.

Management has indicated a focus on mitigating these impacts through efficiency measures and supply chain optimisation, although the timing and effectiveness of such actions remain key variables.

Demand Environment Remains Stable but Value-Focused

Consumer behaviour continues to reflect a value-oriented mindset, with increased emphasis on affordability and household budget management.

Coles has positioned its strategy around value, availability, and private label offerings, which appear to be resonating with customers.

There is also evidence of a shift toward at-home consumption, which supports supermarket demand but may also reflect broader macroeconomic pressure on discretionary spending.

The company’s ability to balance pricing, volume, and margin outcomes will remain central to earnings stability.

Competitive Positioning and Market Structure

Coles operates within a highly concentrated Australian supermarket Duopoly, alongside Woolworths.

This structure provides relatively stable market share dynamics but also limits pricing flexibility due to intense competitive monitoring.

In such environments, operational efficiency, supply chain integration, and digital capabilities become key differentiators rather than pure pricing power.

Coles’ continued Investment in eCommerce, logistics, and inventory systems reflects this structural competitive reality.

Outlook Reflects Stable Growth With Emerging Cost Headwinds

Management has indicated that early fourth-quarter trading has remained broadly consistent with third-quarter performance.

However, rising input costs and weaker sentiment in discretionary categories introduce uncertainty around second-half earnings dynamics, particularly in the Liquor segment.

The outlook suggests a continuation of stable supermarket growth offset by margin pressure risks if cost Inflation persists.

This creates a more balanced risk profile, with revenue stability countered by potential earnings variability from cost-side pressures.

Conclusion

Coles Group’s 3Q26 update reflects steady supermarket performance supported by resilient demand, growing eCommerce penetration, and disciplined execution. However, emerging cost pressures and softer performance in the Liquor division introduce a more complex earnings backdrop for the remainder of FY26. Macquarie’s Outperform rating highlights confidence in the company’s defensive positioning and consistent execution, but near-term earnings dynamics are increasingly shaped by inflationary input costs and consumer sentiment shifts. Coles remains a stable earnings profile within the retail sector, with future performance likely dependent on its ability to maintain margins while sustaining volume-led growth.