Supermarket and retail giant Coles Group has declared its online store has finally turned a profit for the first time in 20 years, but will not say by how much or at what margin, despite posting revenues of $1.1 billion in clicked sales for 2018-2019.
It’s what’s known in the business as a technical profit, and usually sufficiently small to escape a materiality threshold, but enough to appease wincing in the analyst community which has persistently been sweating the supermarket giant over whether or not it can halt ‘clicks diluting bricks’.
Coles' full year group sales revenue (ex petrol and pubs) came in at $35bn, a rise 3.1 percent while group EBIT came in at $1.338 billion, a decline of 8.3 percent on the back of higher costs and the drought biting.
The declaration of online profitability is a big tactical call for Coles' CEO and comes as markets continue to pressure the retail giant on whether it will cede margin to online sales that have for the last two decades dented profits rather than increased them.
But it has also come with a tacit admission that groceries delivered to the door just can’t make the same kind of cash as people physically coming to the shop, whether it’s just to collect online orders or a combination of pick-up and shopping the store.
Shelf stacker in chief and Coles CEO Steve Cain on Thursday actively sought to hose out long-running market perceptions that the Australian supermarket sector could soon be stuck in a rut where consumer preferences to shop online would eat into profits, mostly on increased labour inputs.
The sweet spot, as Cain sees it (and probably so will Woolies), is the click-and-collect model where consumers order online and then pick-up from the store, sparing margin destroying delivery costs.
So while Coles on Thursday bowled-up a 30 percent hike on online sales to $1.1 billion, the kicker that clearly got it into the black is that, of those online sales, 30 percent were click-and-collect - a figure that can now only go north.
The move to declare online profitability will also have been a calculated move to steal some thunder and put some pressure on Woolworths, which has shown brutal efficiency in stripping out costs and maintaining margins.
Coles’ arch rival in Australia’s supermarket duopoly has been ruthlessly using robotics, artificial intelligence and analytics to fine tune its operations as it tries to paint a picture of a smarter, more profitable grocery business after it blew up its foray into hardware in a bid to dent Coles’ former owner, Wesfarmers which owns Bunnings.
Bunning’s hard-headed approach to keeping online sales accretive from day one has not only placed substantial pressure on Coles and Woolies in terms of their online strategy, but also challenged the orthodoxy of online sales needing to be handled by dark stores and delivered.
Tech upgrades powers on, Oracle ERP stays put
Despite making big recent announcements around Microsoft, Arib, Ocado and SAP, analysts quizzing Cain pressed the grocery chief on whether it was anticipated that a replacement for Coles’ core Oracle based ERP would be in the pipeline in the foreseeable future.
Cain said Coles had tried to cherry pick “the best in the world” in terms of tech providers “so we are not reinventing the wheel” but added that while SAP’s Success Factors had been put into HR, the Oracle core ERP wasn’t about to be changed out.
“Clearly there will be a new ERP system at some point, it’s not imminent, Cain said.
In terms of Coles’ other new systems, CFO Leah Weckert said the Ariba supply chain deployment had delivered its first phase , with another drop “happening later on this half.”
The first phase of SAP’s Success Factors HR system had also been delivered Weckert said.
Pressed on the degree of uplift investors could expect from the new software, Weckert sought to manage expectations saying Coles had been on an SAP system and taking a subtle dig at Woolies.
"We are already on a SAP HR system. The level of step change for us is not as significant form going from Excel and faxes, we are actually doing this because there are efficiency benefits from it," Weckert said.