Coles Group, one of Australia’s leading retailers, has revealed a significant $120 million cost overrun and a year-long delay in the commissioning of its Ocado-powered customer fulfilment centre (CFC) in Victoria. The delay is attributed to construction issues identified during quality control processes, marking the third setback since the project’s announcement in 2019.
The ambitious partnership between Coles and UK-based Ocado Group aimed to introduce an end-to-end online grocery platform, automated single-pick fulfilment technology, and advanced home delivery solutions. The project’s initial timeline envisioned the Victorian CFC’s delivery in the fiscal year 2023. However, challenges stemming from the Delta variant of Covid-19 and shifts in Coles’ ecommerce strategy led to a postponement to the fiscal year 2024.
In a strategic update shared in February 2021, Coles underscored its commitment to enhancing customer-centric digital capabilities. Investments in digital platforms, including platform stability and a unified shoppable app, positioned Coles to navigate the surging ecommerce landscape accelerated by the pandemic.
This shift in approach prompted Coles and Ocado to revisit their agreement, culminating in Coles managing the online store and web presence for order intake while Ocado provided automated fulfilment capabilities through the CFCs and store pick channels, alongside last-mile solutions.
CEO Steve Cairns noted in the first half of the fiscal year 2023 that the unique nature of the facilities’ fit-out, particularly the hive and grid, necessitated intricate construction management solutions.
Despite ongoing efforts, delays persisted, prompting Coles to assess the implications for the project’s construction timeline.
Ocado, Coles’ partner, indicated that the timing setback resulted from the need to address construction concerns related to the grid, identified during the quality control phase. The anticipated commissioning of the Victorian CFC is now extended to mid-fiscal year 2025.
This delay comes with a hefty price tag, as Coles anticipates approximately $70 million in project capital costs and an additional $50 million in operating expenditures. The total capital expenditure is projected to reach $400 million, with about 55% incurred by the end of the fiscal year 2023.
Originally estimated at $150 million, and later revised to $330 million due to the integration of added components such as a bakery and fresh produce cutting room, the project’s costs have escalated. Notably, these additions have already been successfully completed.
Amid these challenges, Coles opened an automated distribution centre in Redbank, Brisbane, in April. Powered by Witron technology, this site is the first of two, with the second located in Kemps Creek, Sydney. Coles invested over $1 billion in these facilities, with the Kemps Creek site on track for commissioning in the third quarter of the fiscal year 2024.