Coles 'Smart Selling' strategy delivers first $250m in savings

Coles Group has found its first $250 million in savings from its ‘Smarter Selling’ strategy, which uses a mix of data and technology-led solutions to generate efficiencies across the business.

Smarter Selling is a four-year transformation unveiled in June last year that aims to cut $1 billion of cost out of the grocery retailer's business.

Measures under the broad-based initiative were implemented across logistics and supply chain, at the Store Support Centre, and in-store.

Coles CEO Steven Cain told an FY20 results briefing that the Store Support Centre was "streamlined" with the introduction of new finance and procurement systems “making it easier for our team members to do their jobs,” and 450 jobs cut.

The cuts were first flagged in June last year. It was unclear exactly where the cuts were made. 

However, store support is the name Coles gives its backoffice functions, such as IT, buying and trading, marketing, property, people and culture and procurement. 

In-store, Coles introduced technology solutions to make bakery and deli operations more efficient.

It also made investments in flybuys to build a cloud-based data analytics and loyalty management platform that helps tailor the range of products available in each store to meet local customer demand.

New transport hubs in Victoria and New South Wales also helped optimise logistics across the supermarket network.

The improvements to Coles’ supply chain comes as the company ramps up investment in its Witron automated distribution centres and online fulfilment sites.

One Witron distribution centre under construction in Queensland saw $100 million in capital expenditure, accounting for over 12 percent of Coles’ full-year operating capital expenditure of $833 million, while another facility in NSW has entered the approvals stage.

Coles has also signed leases at two sites for Ocado online fulfilment centres in Melbourne and Sydney to meet the surge in demand for home delivery, with a 20 percent surge in online orders (including click-and-collect) across the supermarket division in the last quarter of FY20 due to the coronavirus pandemic, and an overall increase of 18 percent year-on-year.

The company signed up with Ocado in March last year to recreate its online grocery operations by 2023.

“It is worth highlighting that's in line with the business case for both of these projects as project activities peak in FY22 and FY23,” Cain said.

“We expect to incur incremental operating expenditure relating to project implementation costs, and in FY23 we also expect to incur double running costs.

“In FY22 we expect these costs to be up to $75 million, and we’ll provide further detail on these as the projects progress.”

It was also a big year for online liquor sales across Coles’ three brands, with sales jumping 40.3 percent as consumers switched to at-home consumption thanks in part to temporary pub closures around the country which pushed sales up 70 percent for the fourth quarter compared to the previous corresponding period.

Investment in online platforms across the liquor segment also saw a refresh of the First Choice, Vintage Cellars and Liquorland websites.

However, liquor chief executive Darren Blackhurst said that the division’s future growth will likely be hampered by existing manual processes.

“The key challenge for us is that a lot of our systems and processes are quite manual and we have a largely fixed cost base that now requires a level of investment to lay the foundations for future growth, particularly online, where we have considerable opportunity to grow.”