Coles to spend almost $1B on automated distribution centres

Coles to spend almost $1B on automated distribution centres

With an ongoing threat from Amazon and tightening margins caused by fierce competition, Australian retailers are harnessing every opportunity they can find to boost efficiency.

For the recently demerged Coles Group (ASX: COL), this means cutting labour costs and improving its supply chain through investments in automated distribution.

As its competitor Woolworths (ASX: WOW) gears up for the opening of a $560 million automated distribution centre in Melbourne this year, Coles today announced it would be taking a similar tack with new automated ambient facilities in Brisbane and Sydney.

The supermarket chain has flagged a total capital expenditure of $960 million over six years for the two projects - one in south-west Brisbane and the other in western Sydney.

The group announced today it had entered executive definitive contracts to develop the centres with WITRON Australia Pty Ltd, a subsidiary of Germany industry leader WITRON Logistik + Informatik GmbH.

Coles has entered a leasing agreements for the development of the Redbank, Brisbane site with Goodman Group (ASX: GMG) which is incidentally leasing Amazon's Centenary Distribution Centre in Sydney, while the lease for Kemps Creek, Sydney is with Brickworks Limited (ASX: BKW).

The term of each lease will be for 20 years, while all agreements are still subject to the satisfaction of certain property-related conditions including development approvals.

"With the signing of these important contracts, Coles is one step closer to implementing a key element of its supply chain modernisation strategy," says Coles CEO Steven Cain.

"This will provide a safer working environment for our team members, lower supply chain costs, enhance our overall business competitiveness and make life easier for our customers by having the right offer in the right location."

Coles will recognise a pre-tax provision of $146 million in its 2019 interim result as a significant item in relation to lease exit costs and redundancies for existing distribution centres that will be closed over a five-year period.

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