Coles faces delays and cost blowout at robotic warehouses

Building its heralded robotic warehouses is set to cost Coles $400m, a major increase on the $150m originally planned the supermarket giant has warned.

Former Coles boss Steven Cain kicked off the partnership with Ocado and it will now be new Coles CEO Leah Weckert’s issue to fix. Picture: Martin Keep/Coles

Recently appointed Coles chief executive Leah Weckert is facing her first major headache since taking the reins of the nation’s second largest supermarket chain from former boss Steven Cain with its heralded robotic warehouses that pick and send groceries hitting delays and major cost overruns.

Originally to cost $150m when the deal was inked in 2019 with British tech company Ocado, the Coles robotic warehouses are now likely to cost as much as $400m.

Coles has for the second time in a year warned of delays and cost blowouts for the construction of two automated warehouses by Ocado that it hopes will boost its online grocery sales by as much as $1bn and cut costs, with construction delays and quality control issues to push out when the sites can open.

The supermarket is now facing cost overruns of $120m and a year’s delay in the opening of a Victorian automated warehouse.

In 2019 then Coles boss Mr Cain launched the partnership with Ocado, announcing it would spend up to $150m 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.

Under the initial 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.

These warehouses, one in Melbourne and one in Sydney, would use thousands of robots to sort, pick and pack groceries and streamline Coles’ online shopping operations.

Last year Mr Cain announced the partnership with Ocado for the automated fulfilment centre to fuel its e-commerce ambitions would now cost around $330m, up from an original price tag of $130m to $150m, as Coles decided to ramp up the infrastructure and add new features in the wake of the online shopping boom sparked by Covid-19.

Now with Ms Weckert the CEO, Coles has reported to the market the impacts of fresh delays are likely to increase the project capital and operating expenditure by approximately $70m and $50m respectively, noting the additional capital investment would continue to be managed within the Coles capital expenditure envelope.

Total capital expenditure is now expected to be approximately $400m of which 55 per cent has been incurred to the end of fiscal 2023, with the balance expected to be incurred in 2024 and 2025.

In a statement to the ASX Coles said that at its most recent sales update in April it provided an update on delays affecting construction of the customer fulfilment centres (CFC) and noted that work was continuing to determine what impact the delays will have on timelines. “Coles has received notification from Ocado regarding delayed timing for the hand over of the Victorian CFC.

“Additional works are required to rectify construction issues with the grid identified during quality control processes for the Victorian CFC,” Coles said.

Following further engagement with Ocado and in light of the revised hand over date, the commissioning of the Victorian CFC will be delayed with the incremental ramp up period now expected to commence in fiscal 2025, against a previous target of mid-fiscal 2024.

The timing for the New South Wales CFC being built by Ocado is expected to be commissioned with an incremental ramp up period commencing end of the second half of fiscal 2024, previously in the second half of fiscal 2024.