Coles Group Ltd (ASX: COL) is leasing 2 high-tech sheds in Sydney and Melbourne as it looks to automate its supply chain and speed up home deliveries. With the outbreak of the coronavirus pandemic, demand for online shopping has surged, putting pressure on Coles and rival Woolworths Group Ltd (ASX: WOW).
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Panic buying increases pressure
Coles and Woolworths have seen major increases in sales recently due to panic buying associated with the pandemic. In Q3 FY20, Coles reported 13.1% growth in its supermarket sales which reached $8.2 billion. Woolworths reported a 10.3% increase in Australian food sales which increased to $11.17 billion.
The supermarket rivals were forced to suspend deliveries at the start of the pandemic to ensure delivery was available for the vulnerable and those in genuine need. Although deliveries have resumed, increases in online orders are upping the pressure on Coles and Woolworths to ensure smooth deliveries.
Coles' new distribution centres
Coles has signed leases with Charter Hall Group (ASX: CHC) for 2 massive new distribution centres to boost its online platform and automate the home delivery system. Last year, Coles entered a service agreement with Britain's Ocado Group to bring an online grocery platform, fulfilment technology and home delivery solution to Australia.
Online fulfilment automation is expected to improve customer service and reduce waste, as well as support employment opportunities at a time when many businesses are cutting or delaying investment.
The 15-year leases for the combined 60,000 square metre distribution centres have an end value of some $400 million. The yet-to-be constructed 30,000 square metre Melbourne facility will be located in Truganina in the city's west. The 30,000 square metre Sydney facility is being developed by Charter Hall in Wetherill Park.
Charter Hall focuses on food
Charter Hall CEO David Harrison told the Sydney Morning Herald it was no accident that Charter Hall has a big food logistics theme. "We're now the largest landlord for distribution centres and warehouses for the major retailers. That's been a deliberate strategy," Harrison said.
Including the 2 new distribution centres, Charter Hall has 5 facilities in its portfolio leased to Coles and another 10 facilities leased to Woolworths and Metcash Limited (ASX: MTS). "The on-going growth of e-commerce and the focus on supply-chain efficiencies continues to drive the demand for well located, high quality logistics facilities," says Harrison.
