Supermarket giant Coles has revealed a new strategy – including expanding own-brand product ranges while overhauling store layouts – as competition with Woolworths heats up.
Shares in the business hit record highs following its first investor day on Tuesday, after chief executive Steven Cain announced Coles’ multi-pronged plan for the next four years – including cutting $1 billion in costs.
It follows the announcement on Friday that 450 jobs would be shed from the supermarket’s Melbourne head office.
As the supermarket duopoly faces a squeeze from existing retailers like Aldi and Costco – plus the impending arrival of Kaufland – Mr Cain said Coles would be focusing firmly on becoming the country’s most sustainable supermarket, expanding its own-brand range, and establishing itself as a “destination for health”.
“We will make extensive use of data analytics and artificial intelligence to ensure we are anticipating and fulfilling customer needs as they continue to evolve,” Mr Cain said.
“We want Coles to be a truly customer-obsessed retailer.”
Coles has previously flagged its plans to shift to a convenience focus, announcing in May the supermarket would begin to stock supersized versions of some of its ‘family favourites’, including one-kilogram bottles of mayonnaise, five-kilogram bags of pasta and two-kilogram bags of breadcrumbs.
Under the new strategy, new stores will be “carefully targeted” at locations with a high potential for population growth, and existing stores will be redesigned and restocked so up to 40 per cent of floor space is tailored to suit local shoppers’ needs and habits.
Technology will also play a major role in the supermarket’s future, the business’ announcement to the ASX said, with “manual tasks” and certain “above store” roles (such as office roles) to be automated, and artificial intelligence will be used to guide store purchasing decisions.
Those changes follow on from Coles’ partnership with British-based online supermarket Ocado to automate domestic fulfilment centres, doubling the supermarket’s home delivery capacity.
The venture is expected to cost the business $1 billion by the 2022-23 financial year, but is expected to result in further job losses in addition to the cuts announced last week.
Another key change to Coles’ business model will be an increased focus on its brands. It has plans to reduce costs and increase quality of these products “through deeper, more collaborative relationships with suppliers”.
The strategy makes sense according to analysts from investment bank UBS, who said a focus on cost and convenience would be a positive for the business.
However, UBS said questions remained around the cost of implementing the strategy and reinvesting into the store network as “competitive intensity increases” in the supermarket space.
Coles stock jumped nearly 4 per cent within the first half-hour of trading on the ASX following the unveiling of the strategy, hitting a record price of $13.57 per share by 10.35am before settling back to $13.19 per share by market close – up 3.28 per cent for the day.
Coles hit a high of $12.84 per share when it floated on the ASX on November 23, but quickly saw its price drop (reaching a low of $11.39 on March 1) and didn’t break above that initial high until mid-May 2019.