Coles bullish on sales as ‘refreshed’ strategy unveiled

ELI GREENBLAT
JUNE 18, 2019
The Australian

Coles supermarkets has delivered an upbeat assessment of sales growth heading into the second half of the year, providing outlook that comparable supermarket sales growth for the fourth quarter is expected to be in the upper half of the range between second and third quarter comparable growth.

Coles has posted like-for-like sales growth of 1.5 per cent in the second quarter and 2.2 per cent in the third quarter. Today’s more bullish guidance is aiming for comparable store sales growth of at least 1.85 per cent in the final quarter.

The trading outlook could be some relief to investors, amid worries that a general malaise across the $320 billion retail sector that could also drag grocery sales lower.

The outlook emerged as Coles chief executive Steven Cain held the supermarket giant’s maiden investor and strategy day as an independent-listed retailer since demerging from Wesfarmers.

Coles has forecast unchanged net capex for full year 2019 at $700 million to $800m. It is also targeting cumulative savings of $1 billion by 2023 under a “smarter selling” strategy which will take in initiatives such as greater use of technology and automation.

Coles today announced what it called its “refreshed strategy” with the stated aim of delivering on a vision of becoming the “most trusted” retailer in Australia to grow long-term shareholder value.

Mr Cain said Coles wants to “sustainably feed all Australians to help them lead healthier, happier lives as it sets the foundations for a second century of sustainable growth”.

“Our strategy will truly differentiate Coles in the Australian retail market, allowing us to lead in online through an optimised network, as well as making Coles an own brand powerhouse and a destination for health,” he said.

“It will also provide long-term structural cost advantages while making us Australia’s most sustainable supermarket.”

Mr Cain said his strategy is based on three pillars: “inspire customers” through best value food and drink solutions to make lives easier; “smarter selling” through efficiency and pace of change, and “win together” with team members, suppliers and communities.

“Our strategy directly aligns with the creation of long-term shareholder value by growing revenue at least in line with the market, reducing costs, and generating sufficient cash to fund growth and innovation while delivering an attractive dividend payout ratio,” Mr Cain said.

“As time-poor customers increasingly demand solutions to feed their families easily without compromising on quality, value or nutrition, Coles will expand its convenience and health offerings.

“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 – we want Coles to be a truly customer-obsessed retailer.”

“Smarter selling” is expected to deliver $1 billion in cumulative savings by full-year 2023 through initiatives, including the use of technology to automate manual tasks and simplifying above-store roles to remove duplication, allowing Coles to offset the impact of rising costs including energy and labour.

Coles will optimise its store network to increase sales density and improve profitability, tailoring up to 40 per cent of floor space in stores to meet the needs of local customers.

“Stores catering to value-focused customers will have a simplified range focused on essential items and self-service; where there is demand for a more premium offering, stores will have an extended range including more ‘foodie’ oriented and convenience products,” Mr Cain said.

New store openings will be carefully targeted, with expansion opportunities focused on areas with significant population growth, while Coles Online will focus on improving profitability as the Ocado partnership enables an expanded range and more flexible delivery options.

Coles will report its full year results on August 22. It said comparable supermarket sales growth for the fourth quarter is now expected to be in the upper half of the range between the second and third quarter results, adjusted for the impact of New Year’s Eve.

Net capex expectation for FY19 is unchanged at $700m-$800m.