Coles’ decision to up capital investment in FY22 to $1.4 billion is focused mainly on improving efficiency within the business, primarily through automation.

At Coles’ Strategy Day on Thursday, the company said this will account for about 60 per cent of capital expenditure (capex), while 20 per cent will go towards 50 store renewals and 20 new stores. 

Chief executive Steven Cain said he remains focused on “increasing the pace of change” as Covid tailwinds turn into “unsightly headwinds”.

“In my past, I’ve heard that when retailing gets too complicated, always go back to buying and selling. We are now reaching a tipping point where that is still true, but technology and longer term partnerships are becoming more important,” Cain said in his opening statement.

He said an acceleration of Coles Local and Liquorland renewal will see “a new store program focused on high quality, locations, and winning formats”.

Brian Walker, founder and CEO of Retail Doctor Group, welcomed the investment, saying it’s time Coles caught up on its competitors.

“When you look at capex over the past five years, Coles has, relatively, under invested. So this is welcome, but it is a little bit of a catch-up play. The market is demanding it, competitors are one step ahead, and they have to catch up,” Walker told Inside Retail. 

“Globally, we are undergoing great consumer transformation. We no longer, as a general rule, expect supermarkets to be physical-only entities. We need to be able to shop these brands 24/7, and Coles knows the only way they can do that is by investing capital.” 

Omnichannel strategy

Ben Hassing, chief executive of e-commerce at Coles, highlighted the importance of better serving omnichannel customers, which he said are known to “spend 2.3 times more with Coles in total, than those that only shop in store”.

As part of its omnichannel strategy, Coles has expanded click and collect to more than 780 locations and is converting its service desk model stores to a contactless driver pickup experience through carpark collections and lockers. 

Coles will upgrade this offer by adding capacity and converting stores to drive-through wherever possible. And in the final phase, Coles plans to differentiate the offer “through tech enablement and end-to-end customer experience”.

Coles’ 90-minute click and collect service, known as Click and Collect Rapid, has been expanded to more than 400 stores. Meanwhile, Coles began testing same-day delivery in the third quarter and has begun scaling to more than 400 stores.

“We offer a four-hour order-to-delivery service. We’ve also been working to increase our regional coverage and improve service where needed across Australia,” Hassing said. 

Grocery subscription service Coles Plus, which launched nationwide at the end of the second quarter, is also going strong. 

“The member base has grown three and a half times from the beginning of that quarter to the end of the third quarter,” Hassing said. 

The service provides free delivery, free click and collect, and offers members double Flybuys points on every purchase made online. 

Walker said it’s essential for Coles to act on improving the online experience. 

“Coles have to drive e-commerce customer experience, supply chain automation, store operations optimisation … and in some cases, they’re on the backfoot because some of their store fit outs are pretty old,” he said. 

“It’s recognising the role of customer analytics, customer data, personalisation … that’s the frontier. The grocery industry is transforming because the shift to online has reset capital intensity.”

Hassing said the retailer is on track with the development of its customer fulfilment centres (CFCs) in Melbourne and Sydney.

“These CFCs will offer double the range to what we currently offer. We will also be able to update the range more frequently,” he said. 

The Ocado sites are about 90,000 square meters and they will be “the first in the world to have an on-site bakery, the ability to fulfill loose produce and provide bagless orders for customers at Coles”, Coles said in an Ocado video update.

Sustainability is a key focus of the sites with a number of operational efficiencies, including the reduction of food waste. The roof of both sites will be covered in solar panels and there will also be rainwater harvesting facilities, capable of collecting and holding 240,000 litres of water.