Coles' after-tax profit surpasses AU$1b as tech initiatives save the group AU$300m in FY21

Despite facing 'challenging' conditions due to COVID-19, Coles managed to deliver overall positive FY21 results.
Written by Aimee Chanthadavong, Contributor

Australian retail giant Coles Group has continued to reap the benefits of its tech-driven "smart selling" strategy, recording approximately AU$300 million in savings during the 2021 financial year, despite reporting it faced "challenging operating conditions" due to COVID-19 across its store and supply chain network.

According to Coles, some of the key initiatives that were delivered under the strategy included the introduction of smarter forecasting to improve store-level planning and information flow, as well as stock control improvements to improve product availability for customers.

Replacing over 16 disparate systems, providing team members with a one-stop-shop portal, launching a new people and payroll system, plus introducing a new customer self-service solution at checkout and a fresh produce ordering system were also rolled out under the strategy, Coles said.

"Since the commencement of our smarter selling program, we've now delivered cumulative benefits in excess of AU$550 million," Coles Group CEO Steven Cain told shareholders on Wednesday.

"The team has done a fantastic job in delivering sustainable savings primarily in logistics, stock loss and waste, store remuneration, and then split the benefits of approximate 40% in [gross profits] and 60% in cost of doing business. Our plans are not changed, and we continue to target AU$1 billion in benefits by the end of FY23."

The update comes off the back of Coles Group reporting that after-tax net profit tipped past the AU$1 billion mark for FY21, following a 7.5% increase from AU$953 million last financial year.

Meanwhile, group sales revenue remained stable hovering around AU$38 million, and group earnings before interest, tax, depreciation, and amortisation (EBITDA) moved slightly up to AU$3.43 million.

Supermarket online sales grew 52% for the year to AU$2 billion, which the company attributed was partly driven by COVID-19 lockdowns. The company boasted that it continued to progressively roll out same-day home delivery and click and collect to its stores to meet the demand of online orders.

"A number of improvements were made in the end-to-end online customer experience during the year including in the areas of digital experience, platform stability, expanded range and availability, delivery in full and on time, and improved customer support," the company said.

"Coles Online also invested in its network adding 249 delivery stores and upgraded more than 100 Click & Collect locations. A number of new services were added in the year including same-day home delivery, Click and Collect Rapid (order to pickup in 90 minutes), and Coles Plus membership subscription offer. Monthly active shoppers increased 46% compared to the prior year and customer retention improved.

"Through the use of advanced analytics, 30% of store layouts have now been tailored to ensure the right range is in the right store. Investments in technology and processes have also enabled an increase in customer range activity with more than 650 range changes conducted during the year, an increase of 23% on the prior year."

Similarly, the group's liquor business also saw ecommerce sales jump by 79% during the year.

"We enhanced the omnichannel capabilities in this space through the opening of three ecommerce dark stores in Victoria, Queensland, and Western Australia," Cain said of its liquor business.  

Looking ahead, the CEO said as COVID-19 lockdowns remain in place in parts of the country, its ecommerce offerings will continue to remain a growth area for the business. He pointed out that this was signalled by the fourth-quarter results where the company experienced 62% growth in ecommerce sales, as well as results seen in the first quarter of FY22.

"Ecommerce penetration was 6% in the first quarter and this has increased 8% in the first quarter of FY22. In New South Wales, this is now in double digits … we know the importance of the omnichannel customer and in the fourth quarter, the omnichannel customer spent more than two times that of an in-store only customer," Cain said.

Additionally, smart selling benefits are expected to continue to be in excess of AU$200 million in the new financial year, Cain added.

Coles also expects to incur one-off project operating costs of up to AU$75 million in FY22 and AU$160 million in FY23, as investments in areas such as technology continue.

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