Coles CEO Steve Cain has revealed how he plans to revitalise the group’s food and liquor sales during a strategy update to shareholders.
The update follows last week’s announcement that Coles would cut 450 staff from its Melbourne head office.
Cain is aiming to curb costs by about $1 billion by 2023 to fund investment in its stores and supply chain and grow sales. He said the savings were needed to offset rising energy and wages costs.
Cain said increasing competition meant Coles was facing the toughest five years in its history, as it fights to maintain market share in the face of ALDI and Costco growing in Australia and Kaufland preparing to launch here.
Coles shares rose 52¢ to a record $13.73 on Wednesday, after gaining 3.4% on Tuesday, following Cain unveiling his plans to restore profit growth and grow sales at the group.
The strategy for liquor
Cain outlined strategies to “inspire customers” in the Coles liquor segment – which includes Liquorland, First Choice Liquor, Vintage Cellars and Liquor Market.
He said Coles will focus on these areas:
- Re-platform its website and rollout on-demand services.
- Increase personalised offers through flybuys and Vintage Cellars Wine Club.
- Range tailoring facilitated by new range and space systems.
- Drive exclusive liquor brand penetration and increase innovation in low/no-alcohol drinks.
- Continue value investment and reduction of promotional intensity.
- Roll out a renewal program across all banners
Cain said his “refreshed” strategy was based on three pillars – inspiring customers through best value food and drink solutions to make their lives, smarter selling through efficiency and pace of change and winning together with team members, suppliers and communities.
“Our strategy directly aligns with the creation of long-term shareholder value by growing revenue at least in line with the market, reducing costs, and generating sufficient cash to fund growth and innovation while delivering an attractive dividend payout ratio,” Cain added.
“We will make extensive use of data analytics and artificial intelligence to ensure we are anticipating and fulfilling customer needs as they continue to evolve – we want Coles to be a truly customer-obsessed retailer.”
Overall, the supermarket giant plans to differentiate itself from Woolworths, ALDI and IGA by optimising its store and supply chain network, growing private label brands and becoming a destination for health, and creating Australia’s most sustainable supermarket.
Growth of online
Cain said he was focussed on continuing to improve online customer experience while improving profitability.
He noted the sales transfer to online channels was picking up pace, putting pressure on the profitability of bricks and mortar.
The group’s Ocado partnership was highlighted as being key to winning in online shopping. Coles announced a partnership with British online supermarket Ocado in March to build an automated warehouse for its home delivery business.
Cain said Coles will leverage Ocado moving forward to double its online range to 40,000 SKUs at “minimal incremental cost”.
Focus on low/no-alcohol drinks
Acting Chief Executive of Coles Liquor Cathi Scarce foreshadowed Cain’s revitalised approach to liquor sales in the latest issue of Drinks Trade magazine.
“We know that Australians are drinking less and when they do drink it tends to be more occasion-based,” she said.
“People are looking for something special and seeking out premium products. We’re also seeing customers focus more on health and wellness so the boom in low alcohol and non-alcoholic products is only going to grow.”
IRI Retail Insights Lead Daniel Bone recently highlighted the impact of the new ‘moderation mindset’ in the Liquor Trends Series.
“There is a clear trend towards a reduced propensity to drink daily or weekly,” he said. “In other words: a reduction in the number of occasions on which alcohol is consumed per week. And this will be the ‘new normal’ for the industry given that younger aged drinkers – dubbed ‘generation sensible’ by some media sources – are at the forefront of the abstention and moderation trend.”
IRI research suggests health and moderation themed products will continue to occupy a greater role in drinkers’ repertoires moving forward.
“Innovation pipelines and retailer ranging must better reflect this,” Bone said.
Private label boom
Scarce also noted that exclusive brand liquor sales were surging for Coles.
“Customer demand for our exclusive brand products continues to grow, particularly in the wine category, and in the first half of the financial year these products accounted for almost 20% of liquor sales,” she said.
“In the same period we launched more than 50 new exclusive products and they are fast gaining praise within the industry, with dozens recognised with medals and awards, showcasing our commitment to working with our suppliers to deliver really great products to our customers.
“We will continue to source top quality products from award winning suppliers for our exclusive range and look to innovate and work with suppliers who are developing new products to meet our customers’ evolving needs.”
Ending over-reliance on promotions
At the recent annual summit of the Australian Food & Grocery Council, Coles general manager for grocery, Anna Croft, said the retailer had an “over-reliance” on price promotions.
Similarly, Woolworths’ director of buying for packaged groceries, Peter McNamara, noted that deep discounting was “eroding price trust.”
Constant promotional activity from both supermarkets had made shoppers simultaneously reliant on and desensitised to deep discounts.
Both supermarkets indicated an intention to focus more on consistent and fairer pricing moving forward.