Coles: a retail and insto favourite
- Wed 08 November 2023
New CEO’s longevity in the business appeals to the market.
"We have been very focused on how we make sure we have a compelling customer proposition around value.”
Supermarket leader Coles is a perennial ASX darling, a company that has survived and thrived during COVID and beyond, despite huge challenges. Its new leader is directing the business through a number of investments that will make it even more streamlined and efficient. This year, Coles expects to invest up to $1.4 billion in its operations, including significant investments in building automated distribution centres and two automated customer fulfilment centres.
Leah Weckert became CEO and managing director of Coles Group in May 2023, stepping into Steven Cain’s shoes, who led the business after the 2018 demerger from Wesfarmers. It’s a huge advantage Weckert has worked in a variety of positions across the business.
“I started in merchandise, which is the area that buys all the products you see in store. I spent some time as the state general manager for operations running stores for Victoria,” she says.
A stint in the people and culture division followed, before moving into the CFO role for four years, which Weckert calls a great privilege. Leadership of the Coles Express business and commercial functions for Supermarkets followed. This diversity means she has been able to get to know many different areas of the business and how they all work.
“This has really helped me in coming into the CEO role because I have a broad perspective on how value is created within the business and what really matters to our customers.”
Initial priorities
As soon as she stepped into the CEO position, Weckert looked to build on her existing knowledge of the business through a national series of listening sessions with team members and customers.
“The purpose of those sessions was to fully connect with what's working well in the business and to better understand our opportunities, to make sure I'm really in touch with what matters to our stakeholders,” she says.
She says from the sessions, she learned her customers’ top priority is getting good value and the rising cost of living is their top challenge. “That has shaped some of the things we’ve done in my first few months in the CEO role. We have been very focused on how we make sure we have a compelling customer proposition around value.”
Subsequently, Coles has launched a ‘Great Value. Hands Down.’ campaign which lowered the price of more than 500 lines across the store. The campaign uses the very-recognisable Coles big red hand, a symbol of value across Australia. “We're excited to bring that back and the ads have a bit of fun and a bit of personality about them, which we like, as well.” The Own Brand portfolio has also been reviewed, in an acknowledgement customers are looking for more affordable options for every-day expenses.
During her recent national listening sessions, team members told Weckert about their pride in Coles’ contribution to its communities. “They are very proud we are the largest corporate giver as a percentage of profit, and they are happy about the work we do on sustainability, diversity and inclusion.”
Weckert and her team have been working with the board and executive team to evolve Coles’ strategy. “We wanted to take into account all the serious events that have happened over the last few years in terms of the pandemic, floods, fires and supply chain disruption. We wanted to take all that learning and make sure it’s integrated into a strategy that sets us up for the future. That's been a really important piece of work over the last few months.”
“I always enjoy chatting to our retail shareholders over a cup of tea and a biscuit. They have some very interesting insights to share, which are quite different from those of our institutional shareholders.”
Connecting with the market
With more than 430,000 shareholders on the register, Coles has an extensive investor base, which is diverse in its makeup. This means it requires a multi-faceted engagement program.
“Over the course of a year, we try to reach as many shareholders as possible. A big part of this is structured around our financial results. We also have an investor day we hold every couple of years, where we showcase significant strategic milestones,” says Weckert.
The most recent investor day was an opportunity to showcase Coles’ recently-launched automated distribution centre. “Investors have heard a lot about this over the last few years. So it was fantastic to walk a group of them through it so they could see it first-hand,” she says.
Coles also sees its AGM as a great opportunity to meet and hear from its retail shareholders.
Says Weckert: “I always enjoy chatting to our retail shareholders over a cup of tea and a biscuit. They have some very interesting insights to share, which are quite different from those of our institutional shareholders.”
Focus on strategic partnerships
In recent years, Coles has been on a transformative journey around how technology is used in the business. This has involved partnering with different specialists who are able to implement technology that achieves a competitive advantage for the business.
Witron, which provides automated distribution centre technology, is an example. “They are an absolute world leader in this space, with a track record helping many other large retailers around the world, across more than 90 facilities,” she says.
Another tech partner is Ocado, a leader in automated online orders and its technology is also used by other large retailers around the world. “Partnerships like these deliver real advantages to the business and investors can expect to see their benefits flow through to the company in terms of both the P&L and business model.”
Lessons from the pandemic
Few will forget the toilet paper panic buying of the pandemic years, a difficult period for supermarkets. Weckert concedes it was a tricky time, one that is helping the business prepare for the future.
“During the pandemic, fires and floods, we experienced quite a bit of disruption in the global supply chain. We had to be very creative in how we worked with our suppliers to make sure we could get products onto the shelf for consumers.
“As we have evolved our strategy, one thing we have really internalised is how we deliver consistently and reliably for the customer. That's regardless of whether it's a pandemic, flood or bushfire or anything that might cause a supply shock in the system. Our emphasis has been on how we set up our business model so it has more resilience to cope with events of this nature.”
Coles has been working on its sustainability strategy for many years and is known for this aspect of its operations. “It’s really important to us on a number of fronts. Customers expect to be able to buy great quality, great value food and they want us, as a retailer, to make it easier for them to make sustainable choices. It’s also a motivating factor for our team that gives them a real reason to get out of bed in the morning because they feel like they are making a real difference. We know it's very important to our investors, as well,” says Weckert.
The business splits its sustainability strategy in two. ‘Together to zero emissions’ focuses on its environmental impact, while ‘Better together’ is about its people and social impacts. On a practical level, programs to prevent food waste, reduce the use of plastics and lower emissions have been priorities, including a recent initiative to remove plastic carry bags from checkouts areas.
For many years, Coles has published an annual sustainability report that includes a comprehensive overview of all the actions it takes in this area. Plus half its recent investor day was spent explaining its approach to, and actions on, sustainability, including the progress it’s making toward its targets. Weckert says investors are always interested in ESG topics. “We ask experts in the business in areas like ethical sourcing and packaging to talk to investors about the details.”
“Achieving attractive returns, plus a strong balance sheet, is how we think about growing long-term shareholder value. It’s all part of our vision to be the most trusted retailer in Australia.”
The business of investor relations
Coles has separate strategies for different investor groups, with communication to institutional investors centred on results presentations, domestic and offshore roadshows and specific ESG meetings. For its massive retail shareholder base, the AGM is the main point of engagement. It hosts an in-person AGM and also webcasts the meeting so as many shareholders as possible can watch proceedings and ask management and the board questions. Emails are specifically tailored for the retail shareholder audience. Around 13 sell-side analysts cover the stock, and Coles also hosts briefings for these brokers.
The priority is financial discipline when it comes to capital management. “We target a return above our cost of capital, on balance, across all the capital projects we do. We're disciplined about how we deploy capital and we bring sound governance processes around how capital spend is identified and then approved,” says Weckert.
“We work very hard on maintaining a very strong balance sheet. We look to have solid, investment-grade credit ratings. Achieving attractive returns, plus a strong balance sheet, is how we think about growing long-term shareholder value. It’s all part of our vision to be the most trusted retailer in Australia,” she said.
It will be exciting to see Coles’ future, backed by its new investments and how the business continues to evolve under Weckert and her team.
Related Links
About the author
