Australian grocery sales are growing. But are FMCG suppliers leveraging RGM to capture the right growth?
The latest results from Coles and Woolworths highlight why FMCG manufacturers need to look beyond revenue growth and focus on the commercial quality of that growth.
Australia's two largest supermarket operators have reported different sales outcomes in the first quarter of FY2027.
Woolworths reported comparable food retail sales growth of 6.1%, supported by higher item volumes and lower average prices.
Coles reported supermarket comparable sales growth of 2.7%, with the business highlighting heightened competitive and promotional activity.
The results cover different reporting periods - 14 weeks for Woolworths and 13 weeks for Coles - and should not be interpreted as a perfectly equivalent comparison. Nevertheless, they provide an interesting perspective on the competitive environment facing FMCG manufacturers. Grocery sales are continuing to grow, but the underlying drivers of that growth matter. For FMCG suppliers, the question isn't simply whether the market is growing. It's whether their businesses are capturing profitable growth.
Revenue growth doesn't tell the whole story.
FMCG performance is frequently assessed through sales revenue, market share and year-on-year growth. These measures are important, but they do not necessarily explain whether a business is becoming more profitable or commercially sustainable.
Revenue growth can come from several sources. It may reflect increased unit sales, higher selling prices, improved product mix, greater distribution or additional promotional activity. Each can have a different impact on profitability.
For example, increasing prices may generate revenue growth even when unit volumes are declining.
Alternatively, a business may achieve strong volume growth through deeper promotions while generating relatively little incremental profit.
Understanding the source and quality of growth is therefore central to effective Revenue Growth Management.
Are we growing units or relying on price increases?
The Woolworths result is an interesting example of the importance of separating price and volume performance.
In Q1 FY2027, Woolworths reported comparable item growth of 4.0%, alongside a 0.5% decline in average prices. This indicates that volume-related growth was an important contributor to the retailer's performance.
For FMCG manufacturers, similar analysis should form a core part of commercial performance reviews.
A business reporting 5% revenue growth might appear to be performing well.
However, if that growth is entirely driven by higher prices while unit volumes are falling, the longer-term implications could be less positive. Declining volume may indicate pressure on household penetration, purchase frequency or competitive positioning.
Conversely, volume growth is not automatically attractive if the additional units are sold at unprofitable margins.
Manufacturers should therefore analyse revenue growth through a combination of price, volume, mix and distribution. Where possible, performance should also be considered in equivalent units or total consumption volume, particularly when pack-size changes can distort unit sales.
The objective is to understand not just how much revenue is growing, but what is driving that growth and whether it can be sustained.
Are promotions generating incremental volume and profit?
Promotional activity remains a significant commercial investment for FMCG manufacturers. However, headline promotional sales uplift can be misleading.
A promotion that doubles weekly sales may appear successful, but the full commercial outcome depends on several factors:
How much of the uplift represents genuinely incremental consumption?
How much volume has shifted from other products or future weeks?
What funding was required to deliver the promotional price?
And what happened to profit after accounting for the additional units and promotional investment?
These questions are particularly important in a market characterised by intense promotional competition.
Manufacturers should evaluate promotional performance using an appropriate baseline, allowing for expected sales without the promotion. They should also consider cannibalisation within the portfolio, forward buying, post-promotional declines and the impact on consumer reference prices.
The most useful measure is not necessarily promotional uplift. It is the incremental profit generated by the promotional investment.
This approach can reveal opportunities to reduce ineffective promotional spending while protecting the activities that genuinely contribute to growth.
Are we investing in the right customers and channels?
Customer and channel investment decisions are another increasingly important component of FMCG growth strategy.
Different retail channels attract different shoppers, fulfil different purchasing missions and offer different commercial opportunities. A particular brand might have strong growth potential in supermarkets but face significant price pressure in discount retail. Another might be better positioned to grow through pharmacy, convenience, online grocery or wholesale channels. The appropriate strategy depends on the characteristics of the category, the brand's competitive positioning and the economics of each channel.
Manufacturers should therefore move beyond allocating resources primarily according to historical customer sales or existing distribution. Instead, investment decisions should consider several factors:
The underlying growth outlook of each customer and channel.
The brand's potential to gain or defend share.
The incremental volume and profit available.
The cost of trade investment, distribution and execution.
The strategic role of each channel within the broader portfolio.
This does not mean investing exclusively in the highest-margin customers. Some channels may play an important role in building penetration, recruiting new shoppers or supporting brand visibility.
The objective is to understand the complete commercial contribution of each investment decision.
What should FMCG manufacturers do differently?
Three practical priorities emerge.
Build a clear view of the drivers of growth. Separate price, volume, mix and distribution impacts to understand whether performance reflects genuine demand growth or changes in selling prices.
Evaluate promotional investment through profitability. Use robust baselines and incremental profit measures to identify which promotional activities generate worthwhile returns.
Reassess customer and channel investment priorities. Allocate commercial resources based on future growth potential, strategic relevance and expected return rather than simply maintaining historical spending patterns.
These activities should be supported by a consistent commercial measurement framework.
At minimum, manufacturers should be able to connect net revenue, volume, price, gross margin, trade investment and incremental contribution at a sufficiently detailed customer, product and channel level. This helps ensure decisions about pricing, promotions and commercial investment are evaluated against the same business objectives.
Shape the Future, don't be Shaped by it.
From sales growth to profitable growth. The latest Coles and Woolworths results reinforce an important point for FMCG manufacturers.
Market growth creates opportunities, but it does not guarantee that individual brands will capture profitable growth. That requires a clear understanding of consumer demand, pricing effectiveness, promotional returns and customer economics.
The strongest RGM strategies are not necessarily those that generate the highest short-term sales uplift. They are those that consistently direct investment towards the opportunities with the greatest sustainable commercial return.
The next RGM opportunity may not be another price increase or deeper promotion; It may be making better decisions about where to invest.
Why Real World Marketing?
At Real World Marketing, we help FMCG manufacturers improve commercial performance through Revenue Growth Management, promotional optimisation, category strategy and customer/channel planning.
If you're looking to identify where your business can generate more profitable growth, get in touch with us.
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