Coles says warehouse overhaul will weigh on first-half result as it inks distribution centre deal

Coles has inked a deal to build two automated distribution centres as part of its $950m warehouse overhaul project.

Trucks lined up at a Coles distribution centre. Picture: Mark Wilso

Coles has taken a step forward with its $950 million supply chain modernisation project after it entered into an agreement to build two new automated distribution centres.

The supermarket chain (COL) told the market this morning it had made a deal with logistics company Witron Australia to develop two new automated ambient distribution centres in Redbank in southwest Brisbane and Kemps Creek in western Sydney.

Coles had also entered into lease agreements for the two sites with the Brickworks Goodman Joint Venture Industrial Property Trust. The term for each lease will be 20 years.

“With the signing of these important contracts, Coles is one step closer to implementing a key element of its supply chain modernisation strategy,” Coles chief executive Steven Cain said.

“This will provide a safer working environment for our team members, lower supply chain costs, enhance our overall business competitiveness and make life easier for our customers by having the right offer in the right location.”

The total capital expenditure relating to the supply chain project is expected to be about $950m over six years.

Coles’ former owner Wesfamers flagged the warehouse overhaul last October.

The cost of redundancies and lease exits for the existing distribution centres, which are to be closed over a five-year period, will weigh on the company’s fiscal 2019 interim results, with pre-tax provision of $146m expected.

Those provisions were at the top end of its previous estimate of between $130m and $150m.

Still, analysts and investors had been calling on the supermarket chain to invest in new automated distribution centres, which would help to tighten its supply chain and eventually cut away at costs.

The deal comes ahead of the opening of Woolworths’ automated distribution centre on the outskirts of Melbourne, which is expected to open in the first half of this calendar year.

Brickworks managing director Lindsay Partridge said the company was pleased to secure the precommitment from Coles on its Oakdale West Industrial Estate in Kemps Creek.

“On completion, the facility will be the highest value asset owned by the JV Trust.

“It will provide development profit and further increase the rental return to Brickworks, which continues to expand each year.”

The Oakdale West land was sold to the Brickworks Goodman Joint Venture Industrial Property Trust in 2016.

The agreements with Witron, Goodman and Brickworks are subject to the satisfaction of certain property related conditions precedent including development approvals.