Consumer Staples vs Discretionary: Navigating Inflation and Weak Confidence

Consumer Staples vs Discretionary: Navigating Inflation and Weak Confidence

Sector: Consumer Staples | Product: The Daily Market Pulse | 27 October 2026

Executive Summary

Consumer Staples vs Discretionary: Navigating Inflation and Weak Confidence Sector: Consumer Staples | 27 Oct 2026 | General Information Only Executive Summary Consumer confidence on 27 October 2026 was 67.9, fourth week below 70 and down 17.9 points year on year, with inflation expectations at 6.3 percent. 52 percent say worse off than a year ago versus 16 percent better off. Time to buy major household item fell 6.3 points with 48 percent saying bad time. This backdrop splits staples versus discretionary. Staples includes Woolworths, Coles, Endeavour Group. Woolworths sales $48b with EBIT margin 5.8 percent, inflation in shelf price 2.5 percent, volume down 1.2 percent, own brand penetration 38 percent. Coles sales $38b with margin 4.9 percent, smart selling benefits $90m. Both have loyalty programs with 14m members and data revenue $200m. Key Financials and Business Model Woolworths detailed: sales $48b with food $42b, BIG W $4b, B2B $2b, EBIT $2.8b, margin 5.8 percent, 1,100 supermarkets, 185 BIG W stores, online $6.2b 13 percent of sales, 1,200 delivery vans, pick rate 180 units per hour, customer satisfaction 80 percent, market share 37 percent. Market Drivers on 27 October 2026 Coles: sales $38b with food $34b, liquor $4b, EBIT $1.86b,...

Key Business Drivers

margin 4.9 percent, 840 supermarkets, 920 liquor stores, online $3.1b 8 percent, market share 28 percent, smart selling benefits $90m from automation. Endeavour Group: sales $12b with retail $10b , hotels $2b , 350 hotels, 1,600 retail stores, EBIT $1b , margin 8.3 percent, poker machines 12k. Aldi market share 11 percent with 600 stores, sales $12b , prices 15 percent below Woolworths. Supplier dynamics: 1,200 suppliers, 60 percent of cost of goods, terms 30 days, rebates 5 percent, private label penetration 38 percent Woolworths and 35 percent Coles versus 15 percent in 2015, margin 8 percent higher for own brand. Inflation: shelf price inflation 2.5 percent with fruit and veg up 5 percent, dairy up 3 percent, meat up 2 percent, packaged down 1 percent due to promotions. Volume down 1.2 percent Woolworths, flat Coles. Wage: award increase 5.75 percent, 120k employees Woolworths, 120k Coles, labour cost 60 percent of opex, overtime 5 percent. Consumer confidence 67.9 with 52 percent worse off, 16 percent better off, time to buy major item down 6.3 points, 48 percent say bad time. Inflation expectations 6.3 percent, 4 week average 6.1 percent highest since May. Retail sales ABS September due 28 October alongside

Financials and Key Metrics

• CPI, consensus 0.2 percent month on month. Retail sales have been flat 3 months. Universal Store detail: DTC sales up 9.3 percent in 17 weeks to 25 October with Universal Store 6.6 percent, LFL 2.8 percent cycling 7.7 percent, Perfect Stranger 36.8 percent, LFL 11.6 percent cycling 13.9 percent, CTC 2.9 percent LFL down 0.7 percent online down 8.8 percent, wholesale 4 percent of group. Five new stores YTD with 7 more before Christmas, target 16-20 new stores FY27, 80 stores total, 20 Perfect Stranger, gross margin benefiting from AUD USD stronger offsetting transport, rent cost 12 percent of sales. Wesfarmers: Bunnings sales $19.2b margin 12.5 percent with 280 stores, Kmart $11b margin 10.2 percent with 450 stores, Officeworks $3.5b
• margin 8 percent, Catch $800m loss $40m . Bunnings trade 35 percent of sales, DIY 40 percent, consumer 25 percent. JB Hi-Fi: sales $9.5b with Australia $6.5b , NZ $500m , The Good Guys $3b , margin 6.8 percent, online 25 percent, market share 15 percent in electronics, price matching, cost of doing business 15 percent. Valuation: Woolworths P/E 22x, yield 3.2 percent franked 100 percent, ROE 28 percent. Coles P/E 19x yield 4 percent, ROE 25 percent. Wesfarmers P/E 20x yield 3.8 percent. JB Hi-Fi P/E 16x yield 5.5 percent, payout 65 percent. For sector story, staples beta 0.6, discretionary 1.2. In rate cut cycle discretionary up average 18 percent 12 months post first cut historically. Catalysts: CPI 28
• Oct, RBA 4 Nov, Black Friday sales, Christmas trading. Risks: mortgage stress with arrears 0.85 percent up from 0.62 percent, theft shrinkage 1.5 percent, ACCC inquiry into pricing. Portfolio: staples for resilience, discretionary for growth, with 10 percent staples and 5 percent discretionary in defensive portfolio. Additional Important Detail for Consumer Staples and Discretionary: Woolworths financials: sales $48b, food $42b, BIG W $4b, B2B $2b, EBIT $2.8b, margin 5.8 percent, 1,100 supermarkets, 185 BIG W, online $6.2b 13 percent, 1,200 vans, pick rate 180 units per hour, 80 percent satisfaction, 37 percent market share, cost of doing business 25 percent, shrink 1.5 percent, inventory days 35, payables 55 days. Coles: sales $38b food $34b liquor $4b EBIT $1.86b margin 4.9
• percent 840 supermarkets 920 liquor online $3.1b 8 percent 28 percent share smart selling $90m automation Ocado 2 CFCs $400m. Endeavour: sales $12b retail $10b hotels $2b 350 hotels 1,600 stores EBIT $1b margin 8.3 percent 12k poker machines revenue $1b with 85 percent margin. Aldi: 600 stores sales $12b 11 percent share prices 15 percent below Woolworths cost 10 percent lower via private label 90 percent. Supplier: 1,200 suppliers 60 percent COGS terms 30 days rebates 5 percent private label 38 percent Woolworths 35 percent Coles versus 15 percent 2015 margin 8 percent higher. Inflation: shelf 2.5 percent fruit veg 5 percent dairy 3 percent meat 2 percent packaged down 1 percent promotions volume down 1.2 percent Woolworths flat
• Coles. Wage: award 5.75 percent 120k employees each labour 60 percent opex overtime 5 percent penalty rates 25 percent Sunday. Confidence 67.9 with 52 percent worse off 16 percent better off time to buy down 6.3 points 48 percent bad time inflation expectations 6.3 percent 4 week 6.1 percent highest since May. Retail sales ABS September due 28 Oct alongside CPI consensus 0.2 percent MoM flat 3 months. Universal Store detail: DTC up 9.3 percent 17 weeks to 25 Oct Universal Store 6.6 percent LFL 2.8 percent cycling 7.7 percent Perfect Stranger 36.8 percent LFL 11.6 percent cycling 13.9 percent CTC 2.9 percent LFL down 0.7 percent online down 8.8 percent wholesale 4 percent group Five new stores YTD 7

Market Dynamics on 27 October 2026

more before Christmas target 16-20 FY27 80 stores total 20 Perfect Stranger gross margin benefiting AUD USD stronger offsetting transport rent 12 percent sales wage 20 percent. Wesfarmers: Bunnings $19.2b margin 12.5 percent 280 stores Kmart $11b margin 10.2 percent 450 stores Officeworks $3.5b margin 8 percent Catch $800m loss $40m trade 35 percent DIY 40 percent consumer 25 percent. JB Hi-Fi: $9.5b Australia $6.5b NZ $500m The Good Guys $3b margin 6.8 percent online 25 percent share 15 percent electronics price matching cost 15 percent inventory $1.2b. Valuation: Woolworths P/E 22x yield 3.2 percent franked 100 percent ROE 28 percent Coles P/E 19x yield 4 percent ROE 25 percent Wesfarmers P/E 20x yield 3.8 percent JB Hi-Fi P/E 16x yield 5.5 percent payout 65 percent. Staples beta 0.6 discretionary 1.2 rate cut cycle discretionary up 18 percent 12 months post first cut historically. Catalysts: CPI 28 Oct RBA 4 Nov Black Friday Christmas. Risks: mortgage stress arrears 0.85 percent up from 0.62 percent theft 1.5 percent ACCC pricing inquiry $10m cost. Portfolio: staples for resilience discretionary for growth 10 percent staples 5 percent discretionary defensive. Disclaimer General information only, no personal advice, no AFSL/CAR advice. Data as of 27

Valuation and Portfolio Role

20x yield 3.8 percent. JB Hi-Fi P/E 16x yield 5.5 percent, payout 65 percent. For sector story, staples beta 0.6, discretionary 1.2. In rate cut cycle discretionary up average 18 percent 12 months post first cut historically. Catalysts: CPI 28 Oct, RBA 4 Nov, Black Friday sales, Christmas trading. Risks: mortgage stress with arrears 0.85 percent up from 0.62 percent, theft shrinkage 1.5 percent, ACCC inquiry into pricing. Portfolio: staples for resilience, discretionary for growth, with 10 percent staples and 5 percent discretionary in defensive portfolio. Additional Important Detail for Consumer Staples and Discretionary: Woolworths financials: sales $48b, food $42b, BIG W $4b, B2B $2b, EBIT $2.8b, margin 5.8 percent, 1,100 supermarkets, 185 BIG W, online $6.2b 13 percent, 1,200 vans, pick rate 180 units per hour, 80 percent satisfaction, 37 percent market share, cost of doing business 25 percent, shrink 1.5 percent, inventory days 35, payables 55 days. Coles: sales $38b food $34b liquor $4b EBIT $1.86b margin 4.9 percent 840 supermarkets 920 liquor online $3.1b 8 percent 28 percent share smart selling $90m automation Ocado 2 CFCs $400m. Endeavour: sales $12b retail $10b hotels $2b 350 hotels 1,600 stores EBIT $1b margin 8.3 percent 12k poker machines revenue

• Valuation Multiple: Trades at premium to historical averages due to quality and defensive characteristics
• Dividend and Income: Franked dividends and distribution yields support income focused allocation
• Risk-Adjusted Return: Beta and correlation metrics indicate defensive or cyclical profile depending on sector

Risks and Catalysts

Key Risks: $1b with 85 percent margin. Aldi: 600 stores sales $12b 11 percent share prices 15 percent below Woolworths cost 10 percent lower via private label 90 percent. Supplier: 1,200 suppliers 60 percent COGS terms 30 days rebates 5 percent private label 38 percent Woolworths 35 percent Coles versus 15 percent 2015 margin 8 percent higher. Inflation: shelf 2.5 percent fruit veg 5 percent dairy 3 percent meat 2 percent packaged down 1 percent promotions volume down 1.2 percent Woolworths flat Coles. Wage: award 5.75 percent 120k employees each labour 60 percent opex overtime 5 percent penalty rates 25 percent Sunday. Confidence 67.9 with 52 percent worse off 16 percent better off time to buy down 6.3 points 48 percent bad time inflation expectations 6.3 percent 4 week 6.1 percent highest since May. Retail sales ABS September due 28 Oct alongside CPI consensus 0.2 percent MoM flat 3 months. Universal Store

• Near-term Catalyst: CPI on 28 October, RBA decision on 4 November, and upcoming earnings season
• Medium-term Driver: China stimulus with PBOC injecting record 1.01 trillion yuan and 5-year yield at record low 1.34 percent
• Long-term Theme: AI infrastructure buildout with $300b funding in 2026, grid capex $120b to 2030, and energy transition

Disclaimer

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