Supermarket giant Coles has entered into an exclusive services agreement with the world’s leading online grocery platform, Ocado, to double its home delivery capacity in Australia by the end of the 2023 financial year.
Over the next four years, the supermarket will spend between $130m to $150m on the construction and development of the project, which will give the retailer access to Ocado’s online grocery website, automated single pick fulfilment technology and home delivery solution.
As part of the deal Ocado will install and maintain equipment for Coles within new automated customer fulfilment centres outside Sydney and Melbourne, which are expected to be operational by the 2023 financial year. Each centre has an estimated sales capacity of between approximately $500m and $750m per annum.
The new deal is expected to offer customers a seamless digital customer experience, greater range, improved product availability and freshness, as well as more regular delivery windows. The partnership will also mean an increased network capacity at a lower cost to serve and is expected to double Coles’ current home delivery capacity.
Customers outside of metropolitan Melbourne and Sydney will have access to Ocado’s website, whereby orders will continue to be fulfilled by the existing store-based network, which will continue to evolve over the coming years.
“Ocado is singularly focused on online grocery shopping, and as a result, has become the leading solution provider in the world. We are delighted to be partnering with them to make life easier for Coles’ customers here in Australia. Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future,” Coles CEO Steven Cain said in a statement released to the ASX on Tuesday morning.
On a conference call with analysts this morning, Cain said that while Coles Online is “growing well, at 30 per cent per annum, and due to break even for the first time this year”, this deal is key in “delivering profitable long-term growth for shareholders”.
“Our long term desire is to make online shopping a similar profit to that in-store,” Cain added. Currently online sales represent about 4 per cent of overall supermarket sales.
Cain said he was confident that the deal can help Coles “develop a leading position over time”.
In today’s statement, Luke Jensen CEO of Ocado Solutions said, “We are delighted to partner with Coles”.
“Already a leading player in online grocery retailing in Australia, we are proud that they have chosen the Ocado Smart Platform to take them to the next level. Our flexible, scalable and modular solution will help them bring new levels of convenience, choice and value to Australian consumers. The Australian market is changing as consumer needs evolve and our platform will enable Coles to lead this transformation in a profitable and sustainable way.”
Ocado CEO Tim Steiner said he is delighted to be working with Coles “to reshape the food retail landscape in Australia”.
On today’s call Steiner said he was confident in the future of the partnership, which he confirmed does not have a set end date.
“The contract is in theory into perpetuity… we’re confident this will be a long-term relationship,” Steiner said.
Ocado has over 15 years’ experience in grocery market innovation and recently signed a deal with British retailer Marks and Spencer to boost its online grocery experience.