Company Spotlight MarketWatch: Food

Company Spotlight: Coles Group
Supermarket chain Coles has extended its online grocery shopping service to a sixth Australian city,
Adelaide. Although Australian consumers have not been receptive to online grocery retailing, if Coles
can promote the channel's time and money saving capabilities, while emphasizing that quality is not
compromised, the venture may prove successful.

While online grocery services have operated in Australia for over a decade, the service still only represents a
small proportion of total grocery retailing in the country, particularly when compared to countries such as the US
and UK. In fact, when Datamonitor asked Australians in August 2008 how often they bought groceries online, an
overwhelming majority (87%) reported 'never'. Exactly the same proportion said 'never' in April 2009, indicating
continued resistance to the service. Perhaps in response to low uptake, Woolworths has not matched Coles in
terms of coverage (Woolworths currently offers its online service in Sydney, Melbourne and Canberra only).

One of the most compelling reasons against the adoption of online grocery shopping is the inability to select
fresh produce in person, relying instead on the discretion of supermarket employees. Indeed, Datamonitor's
Consumer Survey conducted in April 2009 found that seven in 10 Australians considered the 'freshness and
quality of produce' to have a high amount of influence in deciding where they do most of their grocery shopping,
while one quarter perceived it to have a 'very high amount of influence'.

However, the current economic downturn may reignite opportunities for online grocery services. The ability for
consumers to purchase groceries from home affords them more 'quality time', an increasingly precious
commodity in times of financial adversity. Accordingly, the aforementioned survey revealed that, compared to
two years ago, 'using time saving products or services' has become more important for over half of Australians.
Furthermore, 'proximity to home' has a high amount of influence for nearly two thirds (64%) of Australians in
their choice of supermarket, illustrating the growing value they place on convenience.

If retailers are able to overcome the perception that online grocery services result in a quality compromise, they
will be in a prime position to capitalize on homebound consumers looking to save time and money (by making
fewer car trips). Retailers can achieve this by establishing a more integrated online and offline shopping
experience, and building a strong online community, so that consumers can trust the quality of products that
they are unable to select in person.

Business description

Coles Group is a full-line retailer which operates supermarkets, national liquor outlets, fuel and convenience
stores throughout Australia and New Zealand. The company primarily operates in Australia.

Coles operates 2,231 food, liquor and convenience outlets across Australia, through the Coles, BiLo, Vintage
Cellars, Liquorland, 1st Choice and Coles Express brands. The company also sells apparel and general
merchandise through its Target, Kmart, and Officeworks stores. In addition to these brands, the company also
operates other businesses including Coles Online and Pharmacy Direct.

Bi-Lo is a discount supermarket retailer, operating more than 190 stores and employing around 15,000 people.

© Datamonitor, A u g u s t 2 0 0 9
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and Harris Technology.876m © Datamonitor. A u g u s t 2 0 0 9 www. on-trend. an online supermarket operating in Sydney and Melbourne where customers can log in anytime to order grocery items. the Liquorland convenience offer and the specialist chain. Vintage Cellars. with 152 Target stores and 117 Target Country stores. Target is a department store retailer offering customers quality.000 Turnover A$16. Officeworks also operates Officeworks BusinessDirect selling office products direct to customers via phone. a specialist technology provider for small to medium size businesses. Coles operates an internet shopping service called Coles Online. The shop and warehouse are located in Silverwater.colesgroup. Kmart is a discount department store retailer in Australia and New Zealand offering low-cost merchandise ranging from apparel to hardware and leisure goods. Pharmacy Direct is a mail order internet BiLo London Ticker CGJ Coles Express Employees 100. delivering a wide range of products to customers in both metropolitan and regional areas. Officeworks is a retailer of office products operating a national network of 107 stores. Key facts Major products & services Address 800 Toorak Road Kmart Tooronga Target Victoria 3146 Coles AUS 1st Choice Liquor Telephone 61 3 9829 3111 Liquorland Fax 61 3 9829 6787 Vintage Cellars Website www. predominantly located in Queensland. Coles Liquor also operates a network of 85 hotels. Coles operates 602 Coles Express fuel and convenience stores across Australia.Company Spotlight MarketWatch: Food Coles Liquor operates a range of liquor retailing formats encompassing three brands: its 1st Choice Liquor superstore. fashionable apparel and soft homewares.101 - . This business substantially increased in scale following the acquisition of the Hedley Group during 2006. New South Wales and staffed by qualified pharmacists who provide prompt expert service and helpful information on prescriptions and general inquiries. fax and . Target operates in 270 locations across Australia.datamonitor. Under an exclusive alliance agreement with Shell.

Company Spotlight MarketWatch: Food SWOT Analysis Table: SWOT Analysis Strengths Weaknesses Integration with Wesfarmers Geographical concentration Strong market position Established brand name Opportunities Threats Store investment Slowdown of the Australian economy Online retailing in Australia Intense competition Source: Datamonitor © . A u g u s t 2 0 0 9 www.datamonitor.102 - .

9 billion ($18. Coles currently operates 750 stores across Australia. By June 2008. Strong market position Coles is one of Australia's largest full-line retailers. It also operates a chain of supermarkets and stores under popular brand names such as Kmart. and Coles Express. Coles Liquor with 1st Choice Liquor. A u g u s t 2 0 0 9 www. Coles has harnessed its brand potential to attract more customers. The results were driven primarily by improved performance in on-shelf availability.Company Spotlight MarketWatch: Food Strengths Integration with Wesfarmers The integration of Coles with Wesfarmers and the subsequent repositioning efforts have added significant strength to Coles' business. Since the company's take-over by Wesfarmers. Coles has been a leader in private brands for several years and has increased its range to 2000 items including the expanded organic label. liquor. with the brands recording a 14% growth in sales year on year. Repositioning efforts following the takeover have allowed Coles's new retail divisions to create a much more customer-focused. the Liquorland and Vintage Cellars . and Officeworks stores.2% over the same period last year to A$16.3 million) in the same period. Established brand name Coles is recognized as a strong brand in the Australian retailing business.datamonitor. The company operates more than 2. the appointment of new management teams and the development of five-year plans and budgets. and convenience stores under the brands Coles and Bi-Lo. With more than 100.103 - .400 supermarkets. As a result of these efforts. A significant amount of work was undertaken since the acquisition to reposition Coles for future growth. thus improving the business performance of Coles. Wesfarmers had restructured the previously centralized Coles functions to create autonomous retail divisions and completed a number of critical commercial reviews. customers have responded well to Coles' housebrand product offering. © Datamonitor.2% to A$12. Operating revenue for the Coles division (comprising the supermarkets. The company operates supermarkets. 862 liquor retail outlets including 95 hotels.8 billion ($11. financial results for the divisions have been sound. Kmart. Coles also sells apparel and general merchandise through 540 Target. liquor.7 billion) with trading earnings before interest and tax (EBIT) of A$422 million ($386. and fuel and convenience stores with 619 sites. There has been a significant reduction in above-store employee numbers at Coles. a focus on providing better value to its customers and increasing customer take-up of the Coles housebrand product offering. Target and Officeworks. Coles has established itself as a leading retailer in Australia which enables it to attract more customers and gives it a competitive edge over its peers. Food and liquor sales also grew by 4.000 employees and over 11 million customer transactions a week. liquor and fuel and convenience businesses) during the period from November 23 2007 to June 30 2008 increased by 7.2 billion). value-driven operation. thereby strengthening its bargaining power. and convenience stores throughout Australia and New Zealand. Additionally.

Further.datamonitor. A u g u s t 2 0 0 9 www. geographic concentration exposes the company to business risks associated with that particular region.104 - .com . the company has operations in Australia and New Zealand. The company's confined presence limits its customer base and does not allow the company to derive the benefits of geographical diversification. © Datamonitor. a major portion of its revenue comes from Australia alone. Though.Company Spotlight MarketWatch: Food Weaknesses Geographical concentration Coles's operations are concentrated in Australia.

Coles operates an internet shopping service called Coles Online. Significant capital investment in both new stores and store refurbishments would be value accretive to Coles' business in the medium to long term.96 billion ($1. © Datamonitor.73 billion) by 2010. the retail industry in Australia will reach A$1. however. eight new Coles Express sites and four new hotels. Coles would be able to garner incremental revenues through its online business. The company's business grew its store network throughout the year.datamonitor. Coles's parent. and introduced 31 new convenience store offers in the Coles Express network. still relatively untapped in Australia with a little over 4% of all retail being conducted online. aims to reinvent the Coles shopping experience through significant capital investment in both new stores and store refurbishments. Online retail is. Online retailing in Australia According to recent industry estimates. but are unable to buy from some of their most trusted brands. as consumers want to take advantage of the convenience and transparency afforded by the internet. opening 17 new supermarkets. it is expected to grow in the coming years. 99 liquor outlets and 27 hotels. growing at a cumulative growth rate of 9% from 2006 to . Between 62% and 78% of Australian internet users are also online shoppers. which is an on-line grocery supermarket operating in Sydney and Melbourne. A u g u s t 2 0 0 9 www. In addition. while working on new concepts and designs for a new store model. the business refurbished or extended 12 supermarkets. Cashing in on its strong brand image. 42 new liquor outlets. While online retailing in Australia is at a nascent stage.105 - .Company Spotlight MarketWatch: Food Opportunities Store investment Wesfarmers.

Coles competes with retailers like Franklins. and in turn affect the demand for the company's products and services. A u g u s t 2 0 0 9 www. However. the inflation rate in the country is more than expected. which commenced operations in Australia in 2001. Previously. in comparison to its performance in the previous years. and forecourt and department stores. which has been increasingly developing discount and convenience store formats. Additionally. The company competes with ALDI.7% to touch 3. across its business segments such as liquor stores. Coles also faces competition from international .5% by the end of 2009 and 3% by the end of 2010. Further. a 0.5% on the same quarter last year. Intense competition Coles faces intense competition in the Australian market from domestic and international players. © Datamonitor. the Australian central bank anticipated the inflation rate to touch 2 to 3% target band by 2010.5% lower than the expected 2% growth. the recent estimates suggest that the core inflation will slow down from the current 4. Intense competition would put pressure on the company's margins and may lead to a loss of market share. Inflation would only return to within its 2 to 3% target band in 2011. An economic slow down in Australia would impact the consumer's retail spending capacity. The company faces competition from large Australia-based retailers like Woolworths. ALDI currently operates 150 stores across Australia.datamonitor. who have entered the Australian market as a result of limited barriers to entry in the region.Company Spotlight MarketWatch: Food Threats Slowdown of the Australian economy The Australian economy is expected to slowdown in 2008. a German-based international supermarket chain. consumer electronics. Gross domestic product (GDP) in the third quarter of FY2008 was expected to be up 1.106 - .

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