Coles will invest another $880m in a new robotic distribution centre

Coles is ramping up investment in its supply chain that stretches from the farmgate to the consumer’s front door, as sales rose less than Woolworths but didn’t result in a profit warning.

Coles CEO Leah Weckert said investment in technology and automation is part of Coles’ strategy aimed at delivering a more efficient supply chain networks. Picture: NCA NewsWire / Nicki Connolly

Coles is ramping up investment in its supply chain that stretches from the farmgate to the consumer’s front door, revealing it will spend $880m on another technology savvy distribution centre to add to the already $1.4bn it has spent on its food and grocery supply chain.

Unveiling its first quarter sales update on Thursday, which showed supermarket same-store sales up 2.4 per cent to $9.507bn, Coles said it would pour more money into another ambient automated distribution centre (ADC) in Truganina, Victoria, in partnership with Witron which has already built two other distribution centres for the supermarket.

The robotic centre will handle packaged goods, such as canned food and groceries like toilet paper, and add capacity as well as further speed to the supermarket’s supply chain.

Coles’s first quarter sales were behind that of arch rival Woolworths, which on Wednesday issued its first quarter sales which showed comparable sales up 3.8 per cent, however unlike Woolworths the smaller supermarket group did not issue a profit warning due to the tougher economic climate and price-conscious shoppers.

Although a more nervous and frugal shopper was also a factor for Coles.

“Cost of living remains a challenge for many of our customers, and we are focused on helping them find value in our stores through weekly specials, value campaigns, Flybuys and exclusive brands,” Coles boss Leah Weckert said.

While Coles did not issue a profit warning for the first half, as did Woolworths, Ms Weckert said the retailer would continue to invest in cheaper prices and promotions to capture sales and remain competitive.

She said that supermarkets sales revenue growth had remained broadly in line with the first quarter in the last few weeks with volume growth supported by the investments it had been continuing to make in value across the portfolio to help support families in the lead up to Christmas.

This was in stark contrast to Woolworths which saw its sales growth in October slow to 3 per cent as shoppers pulled back their spending and cross-shopped at other retailers.

Coles’s first quarter sales rose 2.4 per cent as it invests another $880m in modernising its supply chain. Picture: NCA NewsWire / Andrew Henshaw

Coles said construction of the new ADC would start next year and take five years to complete, and would have greater capacity than existing centres in New South Wales and Queensland.

“This further investment in technology and automation is part of Coles’ strategy aimed at delivering a more efficient, safer and sustainable supply chain network. It follows the successful completion of Coles’ first two ADCs over the last 18 months in partnership with Witron,” Coles said.

The new ambient ADC in Victoria will handle packaged food and grocery items, from canned food to toilet paper, and will have approximately 15 per cent more capacity than Coles’ New South Wales and Queensland ADCs with the ability to process 4.6 million cartons per week.

The Victorian ADC is expected to service all stores in Victoria and Tasmania and will also integrate into Coles’ existing supply chain in South Australia and Western Australia, enabling improved availability for our customers in those states. Together with the New South Wales and Queensland ADCs, this project will deliver full automation of Coles’ ambient distribution centre network across the eastern seaboard of Australia.

Coles expects to recognise a provision of around $35m before tax in the first half relating to future closure and site reconfiguration costs associated with the project

Meanwhile, reporting its latest sales, Coles has called out cost of living pressures still driving the buying behaviour of its shoppers as they seek out value. Coles said sales growth in the first quarter was supported by our winter and spring value campaigns, promotional activity, the winter of sports giveaway campaign and strong e-commerce growth.

This was partially offset by availability challenges in eggs due to the impacts of Avian influenza. Exclusive to Coles sales - its own brand items - revenue increased by 4.5 per cent to $3.3bn with solid volume growth, particularly in the food category.

Total supermarkets price inflation remained steady at 1.5 per cent in the first quarter. Inflation excluding tobacco of 1 per cent in the first quarter moderated slightly from 1.2 per cent in the fourth quarter. Supermarket e-commerce sales increased by 22.4 per cent to $1bn with penetration growing to 10.8 per cent.

At its liquor arm, comparable sales fell 4.4 per cent to $851m.

Originally published as Coles will invest another $880m in a new robotic distribution centre