Coles (ASX:COL) Signs Deal For Automated Distribution Centres, Is It A Buy?

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Coles Group Limited (ASX: COL) has announced it has executed definitive contracts for two new automated distribution centres.

After 10 years being owned by Wesfarmers, Coles Group was split from the broader Wesfarmers conglomerate (which owns Bunnings Warehouse) in November 2018. However, the Coles name has operated in Australia for 100 years. Today Coles is one of the largest retailers in the country, serving 21 million customers per week across its supermarkets, Coles Express, Online, Vintage Choice and others.

Coles New Contracts

Coles has executed definitive contracts with WITRON, the German-based global leader in building automated distribution centres, for two new distribution centres, one each in Queensland and New South Wales.

The total capital expenditure for Coles’ supply chain modernisation project for the two automated distribution centres is approximately $950 million over six years.

Coles will also recognise in the 2019 interim result a pre-tax provision of $146 million for the lease exit costs and redundancies for existing distribution centres that will be closed.

The supermarket business also announced it has entered into agreements for lease catering for the development of the distribution centres at Redbank in southwest Brisbane with Goodman Group (ASX: GMG), and Kemps Creek in Western Sydney, with a joint venture of Goodman and Brickworks Limited (ASX: BKW). The term of each lease will be 20 years.

Coles CEO Steven Cain said:

This will provide a safer working environment for our team members, lower supply chain costs, enhance our overall business competitiveness and make life easier for our customers by having the right offer in the right location.”

Is Coles a buy?

Coles is a fairly defensive business and management have a plan to make the operations even more efficient.

However, some investors may question how much growth Coles can generate in the coming years when it already has a national store footprint and food prices are flat (or even declining).

The other idea that Coles is pursuing is opening smaller format stores in inner city locations. People can still do a full shop at these smaller stores and there will be a large selection of convenience meals & fresh food.

Coles is a defensive business but I think the shares in the free report below could be even more reliable, with more growth prospects.

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