Coles gets ready to accelerate into peak year of capex

Coles is no longer looking to its lower prices. Instead it will “accerlerate” with major expenditure in the next two years to realise the opportunities in the Australian food and liquor markets.

‘Innovation’, ‘growth’ and ‘sustainability’ were words on high rotation at the Coles’ Investor Day today as the business mapped out its plans to get moving, having refreshed its strategy and cleaned up the business and store formats since demerging from Wesfarmers in 2019.

CEO Steve Cain said, “Australia remains one of the most attractive food and drink markets globally, with significant opportunities being created by rapidly changing consumer needs and technology.”

Coles chief financial officer Leah Weckert explained that 2021-22 would be the “peak year” for capital investment, but for the next few years after that, capex would be permanently higher at somewhere between $1.1 billion and $1.4 billion.

In the next twelve months, half of this investment will go to improving the digital shopping experience, increasing ranges and improving efficiencies. In all, Coles is putting $2.5 billion into its digital offering over the next two years.

British group Ocado have been engaged to build automated online fulfilment facilities, with $150 million allocated to two automated facilities in Sydney and Melbourne. It also plans to spend $290 million to automate major distribution centres in Queensland and NSW with the help of German group Witron.

Head of Liquor, Darren Blackhurst explained that the trends to local, premium and on-trend products as well as healthier alternatives continue and that for liquor, online and on-demand sales are the fastest growing channels growing by 90 per cent in first half FY21.

Of its 924 liquor stores operated under three banners, Vintage Cellars, Liquorland and First Choice Liquor Market, the Coles group has seen growth of 19 per cent when compared to FY19. Coles is seeking to capitalise on the ‘latent potential’ of this segment across all three banners

Liquor retail outlets across all three banners have been de-cluttered and cleaned up with Liquorland earmarked to receive significant investment as Coles redesigns store formats, replacing the jarring red and yellow signage with smart and clean black and white livery across more Liquorland stores.

The look is described as “a reset to be local” and corresponds with a streamlining within the stores, reduction in POS, improved sustainability, reduction in waste and energy usage as well as a more diverse product offering including wine styles like sangiovese and rosé.

Coles intends to open more Vintage Cellars, described by Blackhurst as having the “spirit of the independent”, Liquorland and First Choice Market stores in the coming two years.