Coles has selected advanced robotics technology and a new suite of software to help improve profit margin for its ecommerce sales and double the number of home deliveries it can make.

The supermarket has announced its has entered an exclusive partnership with British supermarket and solution provider, Ocado, to deploy its end-to-end online grocery solution.

Coles will roll out proprietary software applications known as the Ocado Smart Platform (OSP) which includes an online grocery website, automated single pick fulfilment technology and last-mile routing management technology to optimise home delivery.

Ocado’s warehouse automation system

The supermarket giant is also building two multi-temperature, highly automated customer fulfillment centres (CFC), located in Melbourne and Sydney, with a sales capacity of between approximately $500m and $750m per annum.

The migration to Ocado’s online platform and the development and construction of the CFCs is expected to be completed by the end of the 2023 financial year.

Coles will pay Ocado fees for the installation and maintenance of the equipment within the CFCs and licensing of the OSP software which is expected to be approximately $130 million to $150 million over the four-year development and construction period.

“Ocado is singularly focused on online grocery shopping, and as a result, has become the leading solution provider in the world. We are delighted to be partnering with them to make life easier for Coles’ customers here in Australia. Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future,” Coles CEO Steven Cain.

To support the project Ocado is a establishing permanent team in Australia, to support both during construction and for ongoing maintenance of the facilities.

Retail analysts have previously noted that the talent required to complete these projects aren’t based in Australia. Due to the relative immaturity of Australian warehouse automation, the big providers of these automation solutions tend to be North American or European and don’t yet have a large presence in Australia.

As a result of the project, Coles said consumers will benefit from improved digital customer experience, greater range, improved product availability and freshness and more regular delivery windows.

For the supermarket, the investment will increase its network capacity at a lower cost to serve, provide a safer working environment for Coles’ team members and create more highly skilled technology, engineering and construction jobs in Australia.

Cost to serve

For bricks and mortar retailers, online can be a more costly channel to serve the customer.

Currently Coles fulfills its online orders from its supermarkets or dark stores. This method adds significant costs to retailers, who now have to pick, pack and deliver orders – all things the customer used to do for free.

Or as Gartner analyst Robert Hetu writes: “Consumers currently spend hours travelling to stores, picking their items and transporting them home. What if they stop and those costs are now transferred to the retailer?”

While grocery sales have been slower to move online than in other categories, supermarkets are looking at ways to manage the cost as volumes grow and international competitors up there ecommerce capabilities.

Coles Online currently generates around $1 billion sales annually, about 3 per cent of its supermarket sales.

Coles is also investing in two fully automated case picking distribution centres in NSW and Queensland which are expected to be operational by the 2023 financial year.

Its other investments include a partnership with Optus enabling high speed broadband access within all stores, new HR, finance and procurement systems with SAP and pick up and delivery partnerships with Uber Eats and eBay.

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