Coles chief John Durkan lays out ‘bold’ road map

Mitchell Neems
MAY 20, 2015
BUSINESS SPECTATOR
Coles will expand the number of its own branded products to drive growth, after its rival Woolworths declared plans to match Aldi prices.
The supermarket giant’s managing director John Durkan told analysts at a Wesfarmers strategy briefing that Coles will also move away from discounted promotional pricing to “stable everyday pricing” of its own brands.
This comes about a fortnight after archrival Woolworths announced a plan to match discount retailer Aldi’s prices.
Mr Durkan’s briefing came as he outlined a “bold” strategy for expansion.
He said Coles brands were the “middle ground” for everyday Australians and the plan was to launch as many of its own brands across most categories at “everyday pricing”.
He gave 99 cents Coles Scotch finger biscuits as an example of everyday pricing.
“We want a range of products across as many categories as we can that customers are willing to purchase from us,” he said.
“High quality Coles brand products at everyday prices that allow shoppers to get into those categories at a reasonable price.”
Increasing its online stores is another key part of Coles’ growth strategy.
Mr Durkan said Coles would markedly increase its online presence next year, including its “Click and Collect” service.
A further 50 stand-alone Click and Collect sites will also be opened.
“Online is an important part of a customers’ weekly shopping activity,” he said.
“Our customers tell us they want their online shop to be simple and they want their shopping at a time that suits them.”
The supermarket price war has hurt both Coles and Woolworths profit margins, although Coles is leading when it comes to growth.
Coles’ quarterly food and liquor sales were up 5.4 per cent while Woolworths lagged behind with 2.3 per cent growth.
As well as the increased online focus, simplification and reducing costs remained at the heart of Coles strategy, Mr Durkan said.
An improvement in operational productivity was also flagged, encompassing a refinement in store-picking efficiency and further simplification of fleet operations.
Mr Durkan said the transformation of Coles’ liquor business was progressing well, with 32 underperforming stores closed over the past 12 months and prices reduced on more than 300 Liquorland key lines.
Moving into the next phase, Coles will continue to roll out Liquorland range changes to more than 200 stores and invest in lowering prices especially through exclusive brands.
Earlier this month, Woolworths said it was aiming to “neutralise” the impact of its chief rivals Coles and Aldi on its grocery sales, outlining a new pricing and value strategy that will see around 400 staff axed.
Woolworths said its investment in the customer offer will be funded through “a significant and ongoing” focus on cost reductions. The company’s cost reduction drive is expected to deliver more than $500m in savings across fiscal 2015 and fiscal 2016.
Officeworks managing director Mark Ward said variable trading conditions are likely to continue, with business confidence expected to remain subdued while competitive pressure remains strong.
Meanwhile, managing director of Wesfarmers (WES) resources business Stewart Butel warned difficult export market conditions would continue in the second half.
The metallurgical coal market continued to be oversupplied, and low export coal prices were anticipated to persist in fiscal 2016, he said.