Coles looks to automated fulfilment to boost online margins

Coles will roll out an online ordering and delivery platform from UK company Ocado.

Coles said that it planned to implement the Ocado Smart Platform (OSP) for online grocery ordering, single-pick fulfilment and home delivery by the end of the 2023 financial year.

The rollout of OSP is expected to double the supermarket chain’s national home delivery capacity and boost the profit margin of its online grocery business.

“Ocado is singularly focused on online grocery shopping, and as a result, has become the leading solution provider in the world,” Coles CEO Steven Cain said in a statement. “We are delighted to be partnering with them to make life easier for Coles’ customers here in Australia.”

“Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future,” Cain added.

The agreement will see the construction of two automated customer fulfilment centres: One in Sydney and one in Melbourne. Ocado will install and maintain the material-handling equipment for the pair of CFCs. Each CFC will have an estimated annual sales capacity of $500 million to $750 million.

Coles expects capex of $130 million to $150 million to build the CFCs as well as IT integration of the new platform, and upfront fees to Ocado.

Outside of the NSW and Victorian capitals Coles existing store-based network will continue to fulfil orders.

In addition to rolling out Ocado’s applications for online grocery purchasing, the agreement covers last-mile routing management to optimise delivery.

Ocado will station a dedicated team in Australia, Coles said.

“Our flexible, scalable and modular solution will help them bring new levels of convenience, choice and value to Australian consumers,” said Ocado Solutions CEO Luke Jensen. “The Australian market is changing as consumer needs evolve and our platform will enable Coles to lead this transformation in a profitable and sustainable way.”

Ocado Group, which has both a retail and a platform business, launched 16 years ago and in mid-2010 listed on the London Stock Exchange. It describes itself as the “world’s largest dedicated online grocery retailer” through its own online storefront, and says it has more than 580,000 active customers.

Earlier this year Coles said it had signed contracts with WITRON Australia — the local subsidiary of Germany’s WITRON Logistik + Informatik GmbH — to develop automated ambient distribution centres in Queensland and NSW as part of a supply chain modernisation project.

Last month Coles confirmed it planned to roll out SAP’s S/4HANA ERP platform as part of a drive to optimise its operations. The group is also planning to use SAP’s SuccessFactors HR platform and Ariba procurement platform.

Coles Group, which includes Coles supermarkets, Coles Express, Coles Liquor and 50 per cent of Flybuys, was spun out by Wesfarmers and listed on the ASX in November.