Coles signals FY23 to be a year of investment and inflation

roducts until early next year in an attempt to fight the impact inflation is having on Australians’ food costs – and purposefully focused on products that are in regular demand, such as meats, sausages and bread rolls. 

Cain noted that, while the business’ supply chain has been heavily impacted by flooding, absenteeism, shipping disruptions, and the conflict in Ukraine, Coles’ aim to deliver the best value it can to customers has become “more important than ever”. 

“The ongoing headwind of rising cost inflation further underscores the importance of our Smart Selling program,” Cain told investors, “[and] the commissioning commencement of three of our four automated distribution centres and online customer fulfilment centres in 2023 will also us to drive future efficiencies.”

As it stands, Coles’ prices grew 1.7 per cent throughout the year, though spiked 4.3 per cent in the last quarter. 

The Smart Selling program, which aims to deliver $1 billion of cost savings by the end of 2023, delivered another $230 million of savings in FY22 and is on track to hit its target, the business said. 

The program has led to efficiencies in the business’ pricing, productivity and distribution centre operations, with over 45,000 supplier vehicles able to enter and exit Coles’ distribution centres without presenting papers, speeding up the process.

Beyond 2023, however, Cain expects the benefits of ‘Smarter Selling’ to continue as a general way of doing things for Coles moving forward. 

Modernisation, at a cost

This more efficient way of doing things will extend to Coles’ partnerships with Witron and Ocado, which are modernising the business’ supply chains. 

Both companies create and operate efficient logistics systems for businesses around the world, but before the deals are done Coles has said it will invest more money into both partnerships due to Covid-19 related delays, expanded scope, integration costs and higher labour costs.

“Our strategic plans have adapted to meet the significantly higher e-commerce sales that we have now, [compared to] 2019,” Cain explained. “There’ll be a greater product range and freshness, it’s expected to be industry-leading.”

Witron is developing two automated distribution centres for Coles, one in Redbank, Queensland, and the other in Kemps Creek, New South Wales. These centres are expected to double the volume of goods able to be stored, while halving the footprint needed, and will cost Coles approximately two-thirds as much as a ‘standard’ site. 

The deal will now cost Coles around $1.04 billion, up from the previous estimate of $950 million. 

Coles’ deal with Ocado will balloon from approximately $140 million to closer to $330 million, as the supermarket is expanding the scope of what the partnership will deliver, adding onsite bakeries and fresh-cut produce rooms at its customer fulfilment centres in Sydney and Melbourne.

Expectations for year ahead 

And while the business is expecting its investments to increase, Cain also said Coles will be cycling against Covid-19 lockdowns in the first half of FY23, while also dealing with the onset of increased price inflation across a number of its categories. 

“Our Express business is expected to benefit from the increased mobility, having been [previously] impacted by lockdown restrictions – but the scale of this benefit will very much depend on fuel prices and the impact of the government’s reinstatement of the full fuel excise levy at the end of September,” Cain said.

“With increasing inflation and rising interest rates placing pressure on many households, Coles will continue to focus on delivering value to customers.”

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