Coles closer to unearthing ideal store format, turnaround on track: Wesfarmers

Posted by Daniel Palmer on 14th November 2008

Coles store design

The Chairman of Wesfarmers, Trevor Eastwood, has told shareholders that he is excited about the platform for growth of Coles, now that the senior management team is in place.

Mr Eastwood was looking to appease shareholders who have watched Wesfarmers’ share price drop to less than half of what it was a year ago and rejected proposed pay rises for the company’s directors.

The proposed bonus scheme could see the salary of the company’s Managing Director, Richard Goyder, increase from $3 million to $7 million by 2011 – if he achieves benchmark incentives. The Board can, however, decide to ignore the shareholder vote and pass on the pay rises.

Mr Eastwood reported that the road on the turnaround was never going to be easy, but suggested they have reached the goals they had set to date.

“In our planning for the acquisition of Coles we knew we needed a vastly changed top team of people. We also knew that the good people we needed would undoubtedly be employed elsewhere,” he said at yesterday’s AGM. “Given that these people would need to be identified, recruited, work out notice periods, and in many cases relocate themselves and their families to Australia, we realised it would take until August or September this year until the new team was in place. I am happy to report that we have in place a world class management team to drive this company towards a successful future.”

“In the short period of time they have been with us they have run a series of stand alone trials,” Mr Eastwood advised. “To name two, they have trialled a whole new fresh food presentation in an otherwise unchanged store. They have also trialled a significant change of store layout and choice of products in an otherwise unchanged store.”

The trials have been a success, he notified shareholders, and will help guide the “future evolution of store presentation and all other aspects of supermarket management.”

They will soon be reviewed so that Coles can combine the most effective features into a single store. The format will then be “monitored, refined and improved” before a gradual roll-out begins next year.

Despite his confidence about the future, Mr Eastwood warned that the turnaround will take time – he believes the five-year timeframe remains realistic.

“We know it is not going to be easy. We needed a new team. We needed a new store format, quality management systems, and we needed to rectify years of underinvestment in both the infrastructure and the ways of working,” Mr Eastwood noted. “There are 750 stores that will need reformatting. We have set a five year target time to achieve that.”

Mr Goyder was, similarly, cautiously optimistic in his assessment of the progress being made.

“We are 12 months into a five year turnaround for Coles and we are on track and feeling good about the business,” he proclaimed. “Meaningful and sustainable improvement will take time, and we are not going to cut corners.”

“I want to emphasise that the changes we need to make at Coles are entirely within our control and need to be made regardless of external conditions,” he added. “We are already starting to see some green shoots of improvement. On-shelf availability is improving. There’s been a reduction in central costs.”

Mr Goyder advised that the necessary cultural change was progressing, while they were also “making inroads into improving value and customer trust”. The store network was being renewed, while investments already made in IT and supply chain infrastructure should enhance efficiency.