Coles Group Limited (ASX: COL) has launched a new strategy to try to attract customer, boost its profit and grow the share price.
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’ Refreshed Strategy
Coles has titled its new strategy as “Winning In Our Second Century” with a plan to more sustainably feed all Australians and create long term shareholder value.
The strategy has three corporate jargon pillars of “Inspire Customers”, “Smarter Selling” and “Win Together”.
The Inspire Customers pillar refers to having the best value food and drink options for customers. Smarter Selling refers to efficiency and pace of change. Whilst Win Together refers to its team members, suppliers and communities.
Coles will utilising various tools to help it deliver better value to the customer including analysis of Flybuys, growing online sales will be boosted by its Ocado partnership and Coles will look to improve its convenience offering.
Expanding its private label brands will include non-food categories such as vitamins and health will be addressed with options like blueberries and fish.
Coles is also working with Uber Eats to provide fast convenience food for customers who want a cheaper option than the local takeaway.
Coles said that it is experiencing cost headwinds with wages rising faster than comparable sales growth with energy & fuel costs also rising. With more sales moving online, the pressure is on the bricks and mortar stores.
Therefore Coles is working to automate manual tasks, improve stock systems, install solar panels.
Coles is also investing a huge amount of money into building two automated distribution warehouses.
The supermarket company will also have four different store formats of premium, standard, low cost and Coles Local.
The idea here is that Coles will try to make every stakeholder a winner by improving the health and safety of employees, have more sustainable products, reduce greenhouse gases, significantly reduce food wastage and so on.
Is Coles A Buy?
Coles is going to be working on more efficient capital allocation, maintaining a strong balance sheet and create $1 billion cumulative cost reductions by FY23.
Coles also said that the Supermarkets segment expects to deliver comparable sales growth in the fourth FY19 quarter in the upper half of the range between Q2’s and Q3’s adjusted results.
All of the initiatives that Coles announced are good in my opinion, but I think it’s necessary to adapt to the modern customer who is looking for a better offering these days. Coles may be a decent idea for defensive dividends over the next few years, but I’m not sure how much growth it can generate with the competition from Aldi, Amazon, Costco and Woolworths Group Ltd (ASX: WOW).
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.