The supermarket of the future is going to depend a lot more on robots.
Warehouses that are mostly empty of people, replaced with machines, will come as tough news for current human workers, but it could be good news for shoppers and farmers.
Coles has been in the fight of its life. It has faced off against Aldi and a resurgent Woolworths.
Then it got dumped by its corporate parent, Wesfarmers.
This week, a big milestone has arrived for Coles — it just released its first official earnings as an independent.
Coles reported revenue in its supermarket division is up 3.1 per cent and it made a net profit of $738 million in the past six months.
But can it make sure these good times last?
The supermarket industry is brutal and Coles will have to fight to make sure each of its 816 supermarkets is making money.
To do so, it’s betting on robots.
ROBOTS AND EMPTINESS
A big part of Coles survival plan is slashing costs by replacing workers with machines.
Coles is going to spend almost $1 billion on new automated warehouses where goods sweep past on conveyors and zoom up and down on lifts, overseen by electronic eyes.
They will open five of these warehouses over the next five years.
Coles has set aside $146 million to cover the costs associated with the change, including redundancies.
Woolworths has already made big bets on automated warehouses.
Coles will shut five existing warehouses. The job losses are hard news for those in the logistics industry. But overall it could be a good thing.
This should reduce the cost of goods on shelves — and it should help Coles take their foot off farmers’ necks.
Farmers and food producers might finally get a break, as it seems Coles and Woolworths are learning something from Aldi.
TWO KINDS OF COST
Supermarkets have costs of two kinds.
One is the cost of goods they buy from farmers and food suppliers. The other is their internal costs.
Coles and Woolworths spent years pushing down the first kind of cost. That made farmers very unhappy.
Meanwhile, Aldi, which sells much cheaper groceries than Coles or Woolworths, has good relationships with its suppliers.
Instead of dudding them on price, Aldi focuses on itself. Ever wondered why the food is stacked in the shelves still in boxes at Aldi?
Everything about Aldi’s business is designed to make processes fast, cheap and efficient. Aldi squeezes its own internal costs hard.
A huge amount of the price we pay for a good goes to getting it to the shelf.
This is called the supply chain and it soaks up billions of dollars a year. If it can be done more efficiently we all save money.
‘STOP SCREWING FARMERS!’
The focus on supply chain costs is timely because pressure is mounting for supermarkets to pay their suppliers more.
On Tuesday, federal agriculture minister David Littleproud called for customers to boycott Coles and Aldi for selling milk for $1 a litre.
It’s true that supermarkets have been playing hardball with farmers for years. But it remains pretty astonishing that a minister would call for a consumer boycott of a large Australian employer like Coles.
It’s more astonishing that it would be a Coalition MP, and more astonishing still that it would be over companies competing to offer consumers low prices.
Coles and Aldi might well take the chance to raise milk prices for customers. Normally, if two companies both raise their prices at once, it smacks of collusion. But if the government tells you to raise prices that risk is gone.
Whether Coles would use higher profits to pay their suppliers more is a separate question.
They could just pocket the money and use it to invest in more robots in their warehouses.
Jason Murphy is an economist. He writes the blog Thomas the Think Engine | @jasonmurphy