The Coles Group Limited (ASX: COL) share price is up 2.5% in response to its new online partnership with Ocado.
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’ Partnership With Ocado
Coles has entered into a service agreement with Ocado so that the Australian supermarket company can gain access to Ocado’s Smart Platform technology.
Coles described Ocado as the world’s leading online grocery website with automated single pick fulfilment technology and home delivery solution.
The two automated Coles distribution warehouses that have been previously announced, one in Melbourne and one in Sydney, are expected to be operational by FY23. Each of them have a sales capacity of between $500 million to $750 million per annum.
Coles said capital expenditure inclusive of upfront Ocado fees is expected to be approximately $130 million to $150 million over the four year development and construction period.
Some of the selling points of the partnership include a seamless digital customer experience, greater range, improved product availability and freshness, more regular delivery windows, increased network capacity at a lower cost to serve, a safer working environment for Coles team members.
Overall, this is expected to double Coles’ Australia-wide home delivery capacity and is expected to improve the profit margin for Coles Online.
Coles CEO Steven Cain said: “Ocado is singularly focused on online grocery shopping and as a result, has become the leading solution provider in the world…Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future.”
Is Coles A Buy?
According to CommSec, Coles is valued at 18 times FY19 earnings, so it’s not as cheap as it was earlier this month.
Coles is doing a number of things to boost its earnings such as creating a joint venture for its hotel business. Even so, it’s important not to overpay for a business that only generates a low level of growth each year.
I think there are better ideas on the ASX that don’t face so much competition.
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