Why Cost Reduction is Important in Retail Industry? A Brief on Coles Group

The grocery and supermarket store industry is one of the active competitive industries in Australia. The big retailers are improving store and digital capabilities to differentiate their brands from other low-cost supermarkets. An Australian chain of supermarkets, Independent Grocers of Australia (IGA), has approximately 5,000 stores in over 30 countries.

In the retail industry, cost control is essential for growth as the retail business is increasing tremendously. There is high level competition, due to which and advancement in technology and increasing customer demands, retailers are facing financial difficulty.

Many retail operations are now investing in online stores which will avoid the (largest) overhead costs. The concept of online stores reduces the inventory cost, staffing and reduces fixed costs such as insurance, utilities and rent.

Let’s discuss one of the largest retailer stocks in Australia- COL

Coles Group Limited (ASX:COL)

A Melbourne headquartered ASX-listed leading Australian retailer Coles Group Limited (ASX:COL) is a trusted retailer, delivering quality value and service to approximately 21 million customers and has 2,500 retail outlets nationally.

Coles’ Purpose, Vision and Strategy (Source: Company’s Presentation)

Coles launches home delivery subscription service

Recently, the company launched its new delivery subscription service which offers unlimited home deliveries to its customers. The consumers who will pay $19 a month will avail the unlimited home delivery service for grocery shops of over $100, while for consumers paying $14, the unlimited delivery option will be availed on Tuesday, Wednesday and Thursday.

The online delivery service will help the regular customers to save up to hundreds of dollars per year, and by knowing the exact cost of online delivery for each month, this service will help to manage the family budget of the customer.

According to one ASX update, the company announced that Coles Group Treasury Pty Ltd (COL’s its wholly subsidiary) had priced $600 million of fixed-rate Aussie dollar medium-term notes that comprised of $300 million of seven-year Notes and 10-years notes. The notes were priced along a coupon of 2.2% and 2.65% for seven and ten years, respectively.

Annual General Meeting-

In an ASX announcement, the company notified about its Annual General Meeting which will be on held on 13 November 2019 at Melbourne. The agenda of this meeting will be-

• Financial report, Directors’ report and Auditor’s report
• Re-election of Directors
• Remuneration report
• Approval of long-term incentive grant of performance rights to the Managing Director and Chief Executive Officer
• Appointment of Auditor
• Resolutions requisitioned by shareholders holding approximately 0.19% of Coles’ shares on issue

First quarter 2020 Highlights-

The Company posted an increased sales revenue by 1.8% of $8.7 billion from FY2020 first-quarter sales.

In the period, COL achieved a supermarket comparable sales growth of 0.1%, which has surpassed the substantial sales achievement in the previous corresponding year. In the early second quarter, the sales growth in supermarkets has trended towards the growth level achieved in Q4 of FY2019.

The company has generated a growth of 0.7% from liquor comparable sales.

Segment performance-

Supermarkets-

The company generated a revenue of $7,705 million from supermarket sales for the first quarter, up by 1.6% compared to the previous year.

The comparable sales growth increase was driven by the launch of new products and additional investment in flybuys.

In the first quarter, the company’s online sale revenue increased by 23.5%. The company’s own brand sales revenue increased by 4.7%.

As the company has launched new products and conducted successful marketing campaigns which also contributed for the growth in sales revenue, sales increase across all segments and Supermarkets delivered the 48th consecutive quarter of comparable sales growth.

Moreover, during the first quarter the supermarkets expanded, and the store networks improved.

Liquor-

The Liquor sales generated a revenue of $726 million for the first quarter, which was up by 3.5% compared to the previous year.

The online channel growth continues to increase, and the company expects to launch its planned websites upgrade in the remaining time of FY2020.

In the first quarter, seven new Liquor stores opened, and the company continued investing in the liquor store.

Express-

The revenue generated from Convenience sales was $264 million, up by 3.1% as compared to the previous year.

During the first quarter, the fuel volume increased by 1.4%.

The entire network site becomes 715 after opening of one new site during this quarter.

Stock Performance-

COL was trading at $15.19, down by 0.58% on 08 November 2019 (3:07 PM AEST), with a daily volume of nearly 570,106 and a market capitalisation of approximately $20.38 billion. The stock has a 52 weeks high price of $15.610 and a 52 weeks low price of $11.026. It has delivered a return of 31.6% on YTD basis and a return of 20.3% in the last six months.

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