Coles’ home delivery goes robotic

Supermarket giant Coles will spend up to $150 million to deliver state-of-the-art fulfilment centres.

Coles' Steven Cain and Ocado CEO Tim Steiner

Supermarket giant Coles will spend up to $150 million to deliver state-of-the-art fulfilment centres that could see it add an extra $1 billion a year in sales from online grocery orders, throwing down the gauntlet to rival Woolworths and new entrant Amazon.

Backed by thousands of robots that will pick and pack customer orders from a centre in Melbourne and Sydney, Coles hopes the new online retail platform will be able to double online sales from 3 per cent to 6 per cent of total sales, making its grocery website profitable.

Coles chief executive Steven Cain yesterday unveiled a new IT partnership with UK-based Ocado, which has been developing online retail platforms for almost 20 years and has a string of retailers around the globe that use its specially built warehouses, robots and software to deliver groceries to the front door.

Under the service agreement with Ocado, Coles will gain access to Ocado Smart Platform (OSP) technology, offering a leading online grocery website, automated single-pick fulfilment technology and home-delivery solutions.

It will deliver Coles two multi-temperature, highly automated customer fulfilment centres, one in Melbourne and one in Sydney, which are expected to be operational by 2023.

Each centre has an estimated annual sales capacity of between $500m and $750m, which would almost double Coles’ home delivery capacity nationally, and was expected to lead to an improved profit margin, Coles said.

Coles Group closed up 26 cents at $11.96

Capital expenditure, inclusive of upfront Ocado fees, is expected to be approximately $130m to $150m over the four-year development and construction period.

Coles said the key benefits of the partnership include a “seamless” digital customer experience, greater range, improved product availability and freshness, more regular delivery windows, increased network capacity at a lower cost to serve, a safer working environment for Coles’ staff and more highly skilled technology, engineering and construction jobs in Australia

“This initiative is expected to approximately double Coles’ current Australia-wide home delivery capacity and lead to an improved profit margin for Coles Online,” Coles said.

Ocado last month clinched a deal with British retail icon Marks & Spencer to create an online food delivery arm.

Online trade is emerging as a key battleground, with Woolworths also pouring hundreds of millions of dollars into platforms and distribution centres.

US warehouse-style chain Costco last week announced it was preparing to launch an online offer. And Bunnings has begun rolling out an online shopping site for Tasmania, as a trial for a planned national launch.

“Ocado is focused on online grocery shopping and has become the leading solution provider in the world,’’ Mr Cain said.

“We are delighted to be partnering with them to make life easier for Coles’ customers. Ocado’s investment and retail partnerships around the world will help us continue to improve our offer.”

As part of the deal, Coles will pay Ocado fees for the installation and maintenance of the equipment in the fulfilment centres and licensing of OSP software.

Macquarie Research said, in a note to clients, the deal was a positive strategic move for the supermarket group: “The move follows recent trends in the supermarket industries in the UK and France and a partnership of this kind is clearly a factor as part of Coles’ strategic refresh. Ocado has previously partnered with major grocers, while Carrefour partnered with Google as part of their reset.

“We view this partnership as positive for Coles, given the need to improve digital solutions, but the competitive edge remains to be seen.”