Coles targets $1bn cost reduction by FY23

Coles says it is targeting $1 billion in cumulative savings over four years as it prepares to compete in a discount grocery market that will soon feature German chains 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.

Chief executive Steven Cain said on Tuesday 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 in itself as discounters such as Aldi and Costco continue to grow in Australia, new players arrive, and online grocery sales outstrip bricks and mortar.

“The outlook for traditional bricks and mortar supermarkets is sales densities could decline in them medium term if action isn’t taken,” Mr Cain said in a media call.

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” throughout 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.

“What we’ve seen in Australia … new (store) space is outstripping population growth,” Mr Cain said.

“We will be very targeted.”

Mr Cain said the strategy did not factor in anticipated savings from its impending home delivery partnership with UK online supermarket Ocado, or the transition to two new automated ambient distribution centres – both of which he said 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 earlier this month.

In a trading update on Tuesday, Coles said comparable sales growth for the fourth quarter is 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 quarter’s 2.1 per cent.

Shares in Coles were worth $12.77 before trade on Monday, up 2.2 per cent on its listing price in November.


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