Coles Counterpunches Competition with DX

Photo credit: iStockphoto/CrispyPork

Facing new competition and struggling with cost pressures, Australian retailer Coles is responding with an enterprise-wide digital transformation program it calls “Smarter Selling.”

One of the boldest aspects of the plan is that, within 10 years, customers will be able to shop and leave the supermarket and pay without going through a checkout.

“I have no doubt in the next 10 years customers will be able to take the product off the shelf, put it in their basket, walk out and have it all paid for,” the company’s head of commercial and express Greg Davis told Australian media last week.

Digital for Defense

While the idea of checkout-free shopping, in 2020 at least, makes for good headlines, it is only one part of the Coles strategy, which is essentially a defensive one as the company looks to shore up its position in a grocery market worth around AUD 100 billion a year.

For many years, Coles has enjoyed a duopoly with rival Woolworths. But the dominance has recently been eroded by the arrival of offshore competitors Aldi and Costco, with Germany’s Kaufland and Lidl also announcing plans for an Australian launch.

Coles has gone through some ownership changes in recent years and was spun off by the Wesfarmers Group in an AUD 18 billion IPO in November 2020.

Underlying the pressure facing Coles is its recent profit results. In its results, announced in August last year, the company revealed a 9.1% profit fall and expressed the hope that things would turnaround again by 2021.

The new “Click and Collect” business was responsible for over 30% of online sales.

Interestingly, the bright spot in the result was that online sales moved into profit for the first time in 20 years, rising by 30%. A key contributor was the new “Click and Collect” business, which has been rolled out to more than 1,000 locations and was responsible for over 30% of online sales.

Faced with a scenario of a 360-degree change, Coles is responding with a wide-ranging transformation program that combines new technology implementations with retail strategies based around demographics, such as converting some stores to a premium model in affluent areas while others focus on convenience and value.

AI, Automation and Robots

AI has a role in this because new investments in analytics will help tailor product ranges in particular stores based on previous buying history – a move that will not only meet customer demands but improve inventory management.

Ultimately, Coles could deliver capabilities such as those showcased by Singapore company Trakomatic at a recent retail exhibition in Singapore, which the retailer also attended.

Trakomatic technology recognizes individual customers when they enter a location, and then sends them specific offers, changes signage in their proximity, and briefs service staff on their choices.

Robotics and automation are expected to double Coles's home delivery capability.

While the headline goal of Smarter Selling is to take AUD 1 billion out of the Coles cost base by 2023, this will be done mainly by replacing old systems and taking Coles into the 21st century with robotics and artificial intelligence.

Robotics and automation have already been implemented in new warehouses as part of an AUD 150 million centralized fulfillment deal signed last year with U.K. online retailer Ocado. It is expected to double Coles's home delivery capability just as its online operation made a profit 20 years after launch.

Another warehousing deal has been signed with German automation specialist Witron, to be implemented in two new “ambient automated distribution centers.”

Re-engineering for Smart

Checkout free shopping will use similar technology implemented by Amazon’s ‘Go’ store concept, where AI and sensors combine to identify the products selected by customers, whose accounts are then debited as they leave.

Other significant IT investments as part of Smarter Selling were announced at the end of 2019.

SAP s/4HANA and SAP Ariba implementations enable procurement savings and streamline processes, while an Infor GT Nexus platform will reduce import freight costs, improve availability, and working capital. 

By understanding insight on where stock is while in transit, Coles will be better able to plan its stock movements to improve availability. In contrast, the less time the stock spends in the supply chain will improve the working capital position.

The platform will also minimize the need to move stock between states, and in Australia, this often means road journeys of close to 1000 kilometers.

Other partnerships have been inked with Accenture, as the implementation and integration strategic partner, and with telco Optus – part of the SingTel group – for a new high-speed network to improve store efficiencies.

Some of these IT investments are to replace legacy systems that go back decades. Wesfarmers, which spun off Coles on the ASX in November, purchased the retailer in 2007, and some systems pre-date that acquisition.

Coles’ advantage is that many of the technologies it is implementing are now more mature.

Then there was old data and systems from other brands, such as the Myer department store when Coles was part of Coles Myer, and from fashion outlet Katie’s, which was purchased two decades ago.

Much of what Coles is doing is long overdue. Still, the advantage it has is that many of the technologies it is implementing are now more mature and, when integrated, can make substantial and holistic improvements across the business.

Competition Takes Notice

Smarter Selling is a big project, but it is certain that Coles’s opposition is not standing idly by and watching.

Long-time competitor Woolworths is a formidable rival and is making its own investments in a changing future, notably in micro fulfillment centers closer to outlets.

And then there are the new foreign players, who will follow the significant success of Aldi in Australia and invest heavily in grabbing market share.

All this means greater competition for the grocery wallets of ordinary Australians, who can expect to be bombarded with offers and new services in the next few years.

But when consumers walk out of Coles without visiting a checkout, after sensors have automatically debited their accounts, few will be aware that the innovation is just the pointy end of a transformation that has touched just about every aspect of Coles's operation.

Photo credit: iStockphoto/CrispyPork