Expert says Coles stores need revamp

AS many as 257 Coles supermarkets are likely in need of refurbishment after the grocer invested too little in its shops in recent years, according to an industry expert.

It is a $500 million headache that will be handled by the new Coles team when the supermarket heavyweight is spun out of Wesfarmers this financial year.

The urgent need to refurbish stores – as well as invest another $200 million to $400 million on new fully automated distribution centres – will place even further strain on the Coles accounts as it prepares for life as an independent company, investment bank UBS says.

In a report for investors, UBS analyst Ben Gilbert has argued Coles has let its store refurbishment cycle blow out to about 15 years over the past three years – well above the industry norm of seven to 10 years.

Mr Gilbert said a “catch up” by Coles would cost upwards of $500 million.

However, there would be a positive effect on sales, he said, with a doubling of refurbishments to add 1 percentage point to 1.4 percentage points to sales growth beyond this year.

Mr Gilbert said Woolworths was investing in its store network, both through small and large-scale refurbishments, which he believed placed it in a strong position to maintain market share gains next year and in 2020.

UBS now also believed Coles needed further investment in price, he said, with the grocer “anecdotally’’ marginally more expensive that Woolworths on so-called known value items, which include staples such as milk, bread and eggs.

The mounting refurbishment bill will be left to the new Coles board and its management team, led by incoming chief executive Steven Cain.