Coles’ cost-cutting blitz
COLES shares hit a new high yesterday after the supermarket announced a $1 billion cumulative savings target over four years to compete with discount grocery market arrivals such as Lidl and Kaufland.
Coles set the cost-cutting target and revealed a new corporate strategy based on automation and targeted use of floor space for its first investor day since listing on the ASX in November 2018.
Shares in the company rose by as much as 7.1 per cent to a new high of $13.68 yesterday, their highest since Coles split from Wesfarmers and listed in November. Coles shares had eased by 3pm but were still up 4.15 per cent at $13.30.
Chief executive Steven Cain said the prospect of increasing competition meant Coles was facing the toughest five years in its history.
He said maintaining market share would be an achievement as discounters such as Aldi, Amazon, and Costco continued to grow in Australia, new players arrived and online grocery sales outstripped bricks and mortar.
“Sales densities could decline in the medium term if action isn’t taken,” Mr Cain said.
Coles’ savings target of $1 billion by FY23 includes Friday’s announcement that 450 jobs will be cut from the company’s Melbourne head office.
Mr Cain said he expected “further reductions in manual operations” p throughout g stores and supply chain, while the company would not hesitate to close unprofitable stores.
The supermarket chain also cited the use of data analytics and artificial intelligence to help it reach its savings goal, along with “optimising” its store network by tailoring up to 40 per cent of floor space to meet specific local customer requirements.
Mr Cain said the strategy did not factor in anticipated savings from its impending home-delivery y p partnership p with UK online supermarket Ocado, nor the transition to two automated ambient distribution centres – both of which would come online in FY23.
“When they kick in we’ll see another level of cost reduction,” Mr Cain said. Coles also flagged opportunities in building on double-digit growth in its $400 million meat export segment, as well as harnessing the joint venture Flybuys initiative with former parent company Wesfarmers.
Mr Cain said Coles would continue its trial with UberEats and was also looking at a meal kit partnership similar to the deal struck between Woolworths and Marley Spoon this month.
In a trading update yesterday, Coles said comparable sales growth for the fourth quarter was expected to be between 1.8 and 2.1 per cent, adjusted for the impact of New Year’s Eve. That is in the forecast upper half of the range between second quarter’s 1.5 and the third q quarter’s 2.1 p per cent.