Coles is aiming to take market share from independent retailers including IGA and Harris Farm Markets by opening a network of convenience stores which cater to local appetites.
The first small format store under the Coles Local banner opened in the well-heeled inner-city Melbourne suburb of Surrey Hills on Tuesday and more stores are set to open in Victoria, NSW and Queensland over the next five years.
The Coles Local is half the size (1200 square metres) of a traditional full-service supermarket and carries about 8000 products – one-third of the usual range but twice the number in Woolworths’ Metro convenience stores – enabling customers to do a full grocery shop.
More than half the floor space is dedicated to fresh foods, including 100 per cent Australian sourced fruit and vegetables and chilled ready-to-eat meals, including prepared meals and pre-cut produce under the Coles Local brand.
Like IGA and Harris Farm stores, the range of packaged groceries is heavily skewed to the local demographic. The Surrey Hills store carries a larger selection of Asian, premium, vegan and vegetarian foods as well as local brands including meat from Melbourne chef Andrew McConnell’s Meatsmith, oils from MoVida, Noisette croissants, Brunetti panettone, Bizzarri Dolci biscuits and Laurent bread.
The store, part of Coles’ $120 million investment in Victoria over the next 10 months, also features a “foodie hub”, with a resident chef and in-store barista.
“Coles Local gives the Surrey Hills community the convenience of a supermarket with the character of a specialty store,” Coles chief executive Steven Cain said.
Higher margins
Coles will assess the success of the Surrey Hills store before rolling out the format, which enables the chain to open stores in areas unsuitable for a full-sized supermarket and is expected to generate higher margins than a traditional store.
Coles has already earmarked sites for more Coles Local stores. Woolworths, which started opening small-format stores five years ago, now has 33 stores under the Metro banner.
The Coles Local format reflects Coles’ shift in focus from price to convenience as customer shopping habits change.
“The convenience opportunity is a big one,” said Mr Cain, who is under pressure from investors to find new avenues for growth when Coles separates from Wesfarmers and becomes a stand-alone listed company.
“We have a strategy of making life easier for our customers and having more locations is a big part of that,” he said.
“For the last decade Coles has been very focused on value and will continue to remain what we believe is the best value supermarket in Australia,” he said. “However, consumer needs are changing and we are moving more towards convenience – that means convenience stores, convenience products, different things for different customer groups – and we have to supply that demand.”
“There’s a high appetite in Australia to eat out and have takeaway and high demand for good quality food … a lot of the consumers in Coles 10 years ago were buying groceries once or twice a week, they’re now buying fresh food three to four times a week and are very focused on what’s for dinner tonight,” he said.
According to market research company IRI, the convenience store channel is growing faster than traditional supermarkets, fuelled by time-poor customers doing top-up or impulse shops several times a week.
“The big once-a-week shops our mothers used to do are not necessarily happening as much – the time-poor shopper is getting bits and pieces here and there,” IRI’s e-commerce development manager Ruth Butler said.
Extracted from AFR