This is part of Retail Outlook, a series of articles running over the next four weeks that explore timely topics and trends for the retail industry in 2020. Click here to see more stories in the series.
The supermarket giant’s four-year transformation journey is well under way – with technology investments and key partnerships giving the retailer confidence to meet challenges head-on in its second century of doing business. Here, Coles CEO Steven Cain talks about the year that was, and what to expect in the year ahead.
How would you describe the past year at coles?
The past year has been one of major change at Coles Group, as the Australian food and beverage market continues to grow, and customer needs and our competitive set change faster than ever before.
In 2019, we set out on our four-year transformation journey, launching our refreshed strategy to become the most trusted retailer in the country by sustainably feeding all Australians to help them lead healthier, happier lives.
Coles has an important role to play in sustainably feeding all Australians. From food waste to a sustainable food chain, this year we set the foundations to ensure we’re here for another century, creating jobs, working with our suppliers and making a positive difference in our local communities.
What have been the highlights over the past year at coles?
Value and everyday low-prices remained central to our customer proposition this year.
We launched several new exclusive Own Brand ranges, including Wellness Road health products, Nature’s Kitchen vegan range and the allergy-friendly ‘I’m Free From’ varieties, offering customers more choices than ever before across Coles Own Brand.
To deliver on our strategic goals at pace, this year we focused on investing in new partnerships and agile ways of working. In the past 12 months we have formed new agreements with technology leaders including Microsoft, Accenture, SAP and Optus.
Together, these partnerships will help us improve our systems and processes to be more efficient.
As part of our exclusive agreement with automated warehousing leaders Witron, construction began in October on the first of two automated distribution centres to be built in Queensland and New South Wales.
We believe that when these distribution centres open in 2022, they will be the most advanced facilities of their kind in Australia.
We’re also proud that this financial year our community contributions rose by 26 per cent to a record $115 million, including our major partnerships with SecondBite and Redkite, helping provide meals for those in need and support for families of children with cancer.
What have been the challenges?
The range of customer expectations is increasing rapidly. While time-poor customers demand healthier and more convenient solutions, there are also many in Australia who are struggling to make ends meet each week and we must continue to deliver better value and keep prices low.
The long-term effects of the drought are having an impact on our suppliers and has contributed to price inflation in FY19. Coles continues to play a collaborative role in partnership with our suppliers and committed more than $17 million to drought relief in FY19.
In the past financial year, Coles delivered a solid performance despite increasing competition and higher costs across the retail sector.
Supermarkets, the biggest contributor of Coles Group’s revenue and earnings, continued to show resilience in an increasingly competitive market.
Have there been any interesting shifts in consumer behaviour in the past year?
We know our customers are increasingly becoming time-poor, with 50 per cent saying they don’t have time to cook from scratch. That’s why this year we’ve significantly expanded our range of ready-to-eat and ready-to-cook foods, so they can grab breakfast on the way to work or make a fresh and delicious dinner without having to give up time with the family.
Our new ‘food for now’ and ‘food for later’ offer has now rolled out to more than 100 supermarkets, complementing our tailored store format strategy, aligning our store layouts and ranges to the needs of the local community, while making store operations more efficient.
Finally, strong double-digit meat export sales growth has cemented Coles as one of the one of the biggest meat exporters in Australia with customers in more than 40 countries. We are looking to develop this business further to build on the brand credentials we have already established in key Asian markets.
How has e-commerce affected coles’ operations?
As customers increasingly shop across multiple channels, we are building a compelling digital experience that will enable us to lead in online shopping.
Our recently-announced exclusive partnership with online retailer Ocado will include an end-to-end online shopping solution, from website to efficiently mapping delivery routes to get customers’ orders to their kitchen benches quicker and at a time that suits them.
Ocado will also build two automated customer fulfilment centres, one in Victoria and New South Wales. These facilities will increase our capacity to fulfil online shopping orders from a wider range of products while reducing costs – solving a problem faced by retailers around the world looking to grow their online sales.
How would you describe the australian retail market?
The Australian food and beverage market is resilient and continues to grow, however it’s clear that new international entrants, rising costs of doing business and an ongoing shift towards online shopping present potential headwinds to the sector.
There has been incredible growth in meal kits and extreme convenience, which are becoming increasingly mainstream, as our customers choose for pre-prepared ingredients to cook effortlessly at home.
The market is also increasingly moving towards delivery services, offering instant gratification and complete meals delivered in under 30 minutes.
The adoption of new technology and automation, and analysing increasing amounts of data, present significant growth opportunities for the sector and retailers like Coles who are prepared to meet these challenges head-on.
Where do you hope to see coles this time next year?
As we embrace the opportunities of the next 12 months, it is vital that we continue to maintain the customer focus and appetite for innovation that our customers and stakeholders expect from Coles.
In the next year, we will continue to execute our strategy at pace as we rise to the challenges of the increasingly competitive Australian retail sector.
The changes we are making to inspire customers are making a difference, and we will continue on this path to make our customers’ lives life easier by lowering the cost of living.
We will continue our investments in new technology and partnerships, ensuring we progressively transform our capacity to operate quickly and efficiently. We’ve made good progress on driving sustainability in all aspects of our business, and the team will work to make great strides in this area over the next 12 months.
Very few organisations in Australia can lay claim to a history of more than 100 years, this energy and dynamism will help us to deliver over the next year, and indeed into Coles’ second century.
Download your free copy of the Australian Retail Outlook 2020 here.
Carly Richards, director, Retail Lead, Risk Consulting, KPMG