‘A whole new world ahead’ for Coles Liquor

19 June, 2019 by Andy Young

Coles CEO Steven Cain has outlined the refresh strategy for the business as a whole, which is aimed at restoring growth and profitability as well as creating a new era at Coles which is based around growth.

Speaking at the first Coles Investor Day since the demerger from Wesfarmers, Cain outlined the overall vision which is to “become the most trusted retailer in Australia and grow long-term shareholder value” with the purpose to “sustainably feed all Australians to help them lead healthier, happier lives”.

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On a higher level the three pillars supporting the vision and purpose are: 1. Inspire Customers 2. Smarter Selling 3. Win Together.

Cain said: “The backdrop to the refresh is that the Australian retail landscape is changing faster than ever. I think it is fair to say that the next five years are going to be the toughest five years we have faced as a company: and the toughest five years that the industry faces.

“That’s for a number of reasons: first the competitive landscape is changing fast, so discounters will continue to grow share and there are more discounters coming to town. Online will gain share and obviously the threat that that poses is that the bricks and mortar sales density will go down, if you haven’t got a good plan to address it.

“We believe this plan does address that because we can’t afford bricks and mortar sales density to decline. One of our key measures going forward is to make sure that productivity in store continues to improve.”

COLES LIQUOR

Speaking about Coles Liquor, Cain said: “Vintage Cellars is still work in progress and we will have a new format on the ground in FY20. First Choice Liquor Market is going very well and what we have seen is a significant improvement in performance over the last few months.

“What we have also done in the period of time [since the demerger from Wesfarmers] is we have announced a joint venture in Queensland for our hotels business. That means we can now focus more heavily on the bottleshops that are associated with the hotels. What we have also got is a partner who wants to invest in Queensland in the pubs business and increase the portfolio and that will give us more opportunities there as well.”

Looking to the future and how the refresh strategy will impact the liquor business, Cain said there is a lot of change happening in Coles Liquor under the management of Cathy Scarce.

“First of all we are re-doing the [First Choice Liquor Market] website, it is a bit clunky (for want of a better word) at the moment, but we will make it the best in Australia over the next six months.

“That will enable personalised offers. To give you an idea about the liquor business at the moment, we are not able to stock products at a lower level than state, so the ranging is state-based, it’s not local. When we send out marketing programs it’s blanket rather than personalised.”

Cain explained that this currently means there is no difference in the promotions whether someone is a rose drinker versus a Shiraz drinker or a beer drinker versus a spirits drinker and that being able to offer more personalised promotions “will enable a whole new world ahead for us”.

He added: “We are also working hard on exclusive liquor brands. That business is still the fastest growing business in the liquor portfolio and it’s at a significantly higher margin. We will continue to invest in everyday value like we are in the supermarkets, and reduce promotional intensity, which is higher in liquor than it is in the supermarkets business. There will also be a renewal program across all banners.

“The Liquorland first phase is more or less complete, we are starting Vintage Cellars in FY20 and we are accelerating the program in First Choice Liquor Market.”

OWN BRAND POWERHOUSE

The commitment to own brand products is one that is being applied across the business, with Cain saying the target is to become “a great value own brand powerhouse” having 40 per cent own brand share within sales.

The commitments that form the strategy are that Coles will grow long-term revenue at least in-line with the market. Cain said: “That’s to say we are going to maintain market share and more preferably grow it, despite the intense competition that we face.”

He added: “We are going to take $1bn cumulative out of the business and we are also planning to increase capital expenditure in a targeted way, as long as it delivers return well in excess of the cost of capital.

“All of that we think will lead to strong cash generation, which will fund the growth and still deliver an attractive payout ratio for shareholders.”

The concept of ‘Inspire Customers’ underlies how Coles plans to drive the refresh with four key customer behaviours driving that. They are trusted value and premiumisation, range tailoring, convenience and home delivery and health focus.

The cost-cutting program started last week with Coles announcing 450 jobs would be cut from its head office team in Melbourne and Cain maintained a commitment to keep the dividend payout ratio at the 80 to 90 per cent detailed when Coles completed its demerger from Wesfarmers.