For Coles, it’s a matter of convenience

With a decision on its demerger from Wesfarmers looming, Coles has revealed a new shopping initiative.

Steven Cain at the opening of the Coles Local store in Melbourne’s Surrey Hills. Picture: Aaron Francis

With the $20 billion demerger of Coles approaching in seven days at a time when global equity markets are experiencing turmoil and confidence is under pressure, the managing director of the supermarket group, Steven Cain, believes global investors remain keen on the retailer’s growth and dividend credentials.

Mr Cain, who will lead Coles on to the ASX next week as an independent company for the first time in 30 years, said overseas shareholders he spoke to on a recent roadshow for the demerger from Perth-based Wesfarmers were not fazed by recent sharemarket ructions that had sent share prices downwards.

Mr Cain sad international investors were more focused on Coles’s growth profile than it being a defensive play offering a strong flow of dividend.

Mr Cain, who was accompanied on an investor tour of Asia, Europe and the US by his chief ­financial officer, Leah Weckert, said the mood was not affected by the sharp sharemarket slides, which included continued heavy losses on Wall Street this week, while he was conducting the Coles investment roadshow.

“It’s different internationally compared to domestic. Domestically, there’s a lot of focus on dividends and, obviously, we’re marketing Coles as a good dividend stock,” Mr Cain said yesterday as he opened the first Coles Local small-format store in the Melbourne suburb of Surrey Hills.

“Overseas, [the investment horizon] tends to be a bit more long term … and so they are interested in what is the growth story, as well as what is the dividend story.”

Mr Cain said he met about 100 investors on his tour, with most being existing Wesfarmers shareholders — who will get shares in Coles if the demerger is approved tomorrow — as well as some new investors keen to hear about Coles.

When its shares list on November 21, Coles will be ranked in the top 30 of Australia’s biggest publicly listed companies and have annual sales of almost $40bn.

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But despite the recent market upheaval, which happened as he was overseas holding briefings, Mr Cain did not seem flustered by the wild ride on global equity markets.

“To be honest, the sorts of investors we were talking to are more long-term, big investors and they’re not the type of guys who are fazed by a correction in the marketplace,” Mr Cain said.

“Clearly, that is the land of hedge funds and so on, but we’re looking for long-term investors who can see that this is a dividend story in the short term and, hopefully, we will get to a higher-growth situation in the medium term.”

Coles hopes the convenience of the new small-format Local stores will be a key driver of growth in the future.

At the opening was former Coles CEO John Durkan, who now consults to Wesfarmers, while former Victorian premier Jeff Kennett, who lives nearby and has been involved on Coles’s work with suppliers, also popped in for a visit.

The Australian first reported on the Coles Local format in July. The venture was led by Mr Durkan, with the project codenamed Project 535, which will see the rollout of as many as 120 neighbourhood stores that fuse aspects of a convenience store with a full fresh and packaged grocery offer.

“Obviously, we think we can get a good return out of the business,” Mr Cain said.

“We expect that this store will be a higher-margin store than a traditional supermarket, but it is selling a very different range of unique and premium products.

“The mix in here will be more premium than a traditional supermarket, and more premium products obviously have a higher margin than flour and sugar and some of the stuff you see in traditional supermarkets.

“I think everyone is having a go … this is a high-growth channel wherever you look in the developed world.’’

It is a play by Coles for shoppers looking for convenience shopping and premium products, especially around areas such as vegetarian, vegan and ready-to-eat meals, as well as up-market groceries.

As a Local small supermarket, the Surrey Hills store will source products from high-profile Australian suppliers, including Backyard Honey, chef Andrew McConnell’s Meatsmith butchery, Brunetti and MoVida, and will sell 100 per cent Australian-grown fresh fruit, vegetables, meat and fresh seafood.

Coles Local will be the first in Australia to see quality products under that private label brand, including Coles Local convenience meals and prepared fruit and vegetables.

It also features a new “Foodie Hub” with a resident chef to offer product samples, advice and recipes to customers in store.

The new small-store format, around half the size of a standard Coles supermarket, is a strategic response to the problem Coles, Woolworths and other large chains face in finding sizeable blocks of land in congested capital cities for new standard-sized supermarkets.