Coles partners with UK’s Ocado in online grocery shopping overhaul

Coles hopes to double home grocery deliveries with a $150m, four-year tie-up with UK online supermarket Ocado.

Coles' Steven Cain and Ocado CEO Tim Steiner

Supermarket giant Coles will spend up to $150 million over four years to take the online fight to new entrant Amazon, as well as beef up its shopping platform to combat local rivals, after announcing a tie-up with global player Ocado.

The deal will almost double Coles’s capacity to transact home deliveries from online orders, making it a new leading player in the online grocery shopping sector.

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 full-year 2023.

Each centre has an estimated sales capacity of between approximately $500m and $750m per annum.

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 is expected to lead to an improved profit margin for Coles Online,” Coles said in a statement.

Ocado Group is a UK based company which last month clinched a deal with British retail icon Marks & Spencer to create an online food delivery arm.

Ocado has more than 15 years’ experience in disrupting traditional grocery markets.

Online trade is emerging as a key battleground for the major supermarket chains with Woolworths also pouring hundreds of millions of dollars into its platforms and distribution centres.

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

Coles CEO Steven Cain said: “Ocado is singularly focused on online grocery shopping, and as a result, has become the leading solution provider in the world.

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

Coles said migration to Ocado’s online platform and the development and construction of the fulfilment centres was expected to be completed by the end of the 2023 financial year.

“To ensure successful implementation of the project, Ocado has committed to a dedicated team to be based in Australia, both during the construction phase and then permanently for the ongoing maintenance of the facilities,” it said.

“The partnership provides a unique opportunity for Coles to deliver a best-in-class customer experience driven by greater range, improved product availability and freshness, a significantly enhanced online capability and more regular delivery windows.”

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.

Sales capacity for each centre of between about $500m and $750m per annum would approximately double Coles‘ current home delivery capacity Australia-wide, and was expected to lead to an improved profit margin, Coles said.