by When a chief executive exclaims that they are putting the foot down on the accelerator as Coles Steven Cain did on Thursday, investors naturally worry about the additional fuel required – and by fuel I mean capital.
A 30 per cent increase in capital investment next year for a company the size of Coles is a lot of money – bumping it up by around $400 million to $1.4 billion next year.
For shareholders the fear of big spending is natural and it explains why Coles share price fell more than 4 per cent after the announcement. History is littered with big spending programs that didnt achieve the return on investment.
But Coles has little choice but to pursue this strategy or risk being left on the shelf with its use-by date passed.
Coles chief Steven Cain with one of the “daleks” that will pick online grocery orders. Credit:Wayne Taylor
The supermarket sector has experienced its disruption moment over the past few years – and one which the pandemic has turbocharged. While logistics and distribution models had already started down the path of technolog driven improvement, supermarkets have now recognised they can no longer ignore the rising appeal of online grocery shopping.
Coles announced two years ago that it had partnered with UK group Ocado and Witron to overhaul its warehousing to make its online focused distribution centres fit for purpose. This provided one of the early signs of a real technology pivot. But Cain is now clearly keen to raise the technology stakes.
For decades the sector spent its capital expenditure budgets on building new and often larger stores and refurbishing old ones. However, the game has moved on as the paradigm has shifted. Cain wants Coles to become a world-leading technology retailer and that requires investment.
For supermarkets, their latest attempts to grow market share have taken on a different complexion. Its about using data to understand customers, giving them what they want and when they want it.
Better customising of stores to meet the requirement of customers, speeding up the times between customer orders and delivery, as well as, having a better handle on micro-inventory decisions. These functions have become increasingly vital to everyday operations and managing them is a far more sophisticated challenge than just having a good app.
