Under fire Coles to add 200 stores

29 May, 2013 by TheShout

By James Atkinson

Coles' liquor business today faced another reproach from one of its longtime critics, but boss Ian McLeod said the division is improving its profitability and will add 200 stores within the next five years.

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At a strategy briefing day for parent company Wesfarmers, Merrill Lynch analyst David Errington grilled McLeod on why he didn't spend more time on liquor in his 30-plus slide presentation to investors.

"I don't mean to be a smart alec or anything but when you look at your entire presentation, liquor was only one slide," Errington said.

"When you look at Woolworths it's 15 per cent of their sales and above 10 per cent of their earnings and I think you said it was well under five per cent of your earnings."

"Are you strategically positioned in a disadvantaged way that it's just going to be hard for you to ever get up to that level that Woolworths has?" Errington asked McLeod.

The analyst – who has been highly critical of Coles Liquor's performance on previous occasions – then went on to suggest the division had been haphazard in its approach since McLeod and current liquor boss Tony Leon joined.

"The hallmark of your management over the last five years has been consistency… with liquor you just seem to have been a bit all over the place, [with] all due respect," Errington told McLeod.

The analyst said Coles Liquor in the McLeod/Leon era was initially very aggressive on pricing, "then in the last year you're increasing your profitability, effectively from walking away from those deep discounting promotions".

"Are you now at the stage where you've got a consistent approach that we can see for the next three to four years… or are you still just 'sucking it and seeing'?" Errington asked.

McLeod responded that the deep discounting approach since abandoned by Coles Liquor was a "race to the bottom" by the entire market, not just Coles.

He said that while liquor had clearly suffered from Coles' preoccupation with its supermarkets, the division is now well on the way to recovery.

"We're very focused on it now, we strengthened the capability of the team, we've changed our strategy… in terms of pricing and we believe there are opportunities within network development as well," he said.

"We probably aim to open about 200 stores in the next three to five years in liquor," McLeod said.