Information About Coles Group
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6 Information about Coles Group 6.1 Background Information Coles Group (ASX:CGJ) is one of Australia’s largest retailers with approximately 3,000 stores, revenue of $34.7 billion (FY2007) and market capitalisation of approximately $18.0 billion as at 25 September 2007. Coles Group is headquartered in Melbourne, Australia and employs approximately 170,000 people nationally. A brief history of Coles Group is set out below. • The fi rst Coles Group variety store was opened in Melbourne, Victoria in 1914 and the fi rst Coles Group supermarket was opened in 1960. At the end of the 2007 fi nancial year, 674 Coles and 71 Bi-Lo supermarkets were open. • The fi rst Kmart opened in Melbourne, Victoria in 1969, and as at the end of the 2007 fi nancial year, there were 182 Kmart stores in Australia and New Zealand, making it Australia’s largest discount department store operator. • In 1985, Coles Group merged with The Myer Emporium Limited to create Coles Myer Limited. • The merger with the Myer Emporium brought Target into the brand portfolio which, as at the end of the 2007 fi nancial year, had 268 locations in metropolitan and country areas offering on-trend apparel and soft home-wares. • Through the 1980s and 1990s Coles Group acquired a number of liquor businesses and over the past six years it has continued to expand its liquor business by acquiring hotels and rolling out superstores. • In 1994 the fi rst Offi ceworks store opened, with the chain having grown to 107 stores and nine Harris Technology Business Centres as at the end of the 2007 fi nancial year. • In 1994, the FlyBuys program was launched and has grown to be the largest customer loyalty scheme in Australia. This is complemented by the Coles Myer Source MasterCard with an attached loyalty offer. • In 2003, Coles Group entered into a long term arrangement with Shell whereby Coles Group operates the Shell convenience outlets and a discount on fuel prices is provided to Coles Group Supermarket, Liquorland and Kmart customers. • In 2006, Coles Group sold Myer to Newbridge Capital and The Myer Family Company for $1.4 billion. Recent strategic focus In 2002, Coles Group announced a fi ve year strategic plan to substantially improve Coles Group Shareholder value. The key elements of achieving this goal focused on: • turning around Coles Group’s non-food businesses; • growing the Food and Liquor business; • replacing the shareholder discount card and improving the loyalty program; and • transforming the culture, supply chain and systems within Coles Group. In 2006, Coles Group was able to report to Coles Group Shareholders the successful delivery of key elements of this plan. Between FY2001 and FY2006 underlying net profi t after tax had increased from $333 million to $787 million and signifi cant additional Coles Group Shareholder value had been created. Other key strategic goals were also achieved, including: • underlying non-food profi tability increasing in earnings before interest and tax from $101 million in FY2001 to $462 million in FY2006; • compound profi t growth of over 9 per cent per annum being achieved by the Food and Liquor business; • the Coles Group Shareholder discount card being replaced with a more effective and sustainable customer loyalty program; • signifi cant progress being made around the transformation program since commencement in FY2003; and • review of the broader business portfolio resulting in the Myer business being divested for $1.4 billion in FY2006. Having completed the turnaround phase of Coles Group’s strategic plan, in July 2006 Coles Group outlined its new fi ve year plan for FY2007 to FY2011. The centrepiece of the new fi ve year plan is the creation of an integrated Everyday Needs Business (ENB) comprising food, liquor, fuel and general merchandise to leverage the “Coles” brand. Integration of these businesses is intended to create a leaner, more innovative organisation that is closer to the customer and operating on a lower cost platform. In addition, Target and Offi ceworks intend to build on their current strategies, improving customers’ in-store experience and increasing their Australian national footprint. Under the new fi ve year plan each Coles Group business has specifi c strategies to improve the customer in-store experience and product offering. Two further Coles Group-wide business initiatives support future growth: COLES GROUP LIMITED SCHEME BOOKLET 39 6 Information about Coles Group (continued) • Business simplifi cation: this initiative is focused on simplifying non-store operations to reduce both above-store roles and non-personnel expenses; and • Transformation: this initiative is focused on improving the fl exibility and effi ciency of Coles Group’s supply chain and information technology. Further detail around these initiatives can be found in Sections 6.3 and 6.8. 6.2 Coles Group structure Figure 6.1: Coles Group structure COLES GROUP Specialist Businesses Food and Liquor Target • Supermarket and retail liquor operator • Apparel and soft homeware • $20.4b sales and $693.3m EBIT in FY2007 • $3.3b sales and $290.0m EBIT in FY2007 • 1,581 stores & hotels (745 supermarkets and 836 liquor) • 268 stores Express Kmart Officeworks • Fuel and convenience stores • Value focused GM&A retailer • Office products retailer • $5.8b sales and $79.9m EBIT • $3.9b sales and $96.8m EBIT • $1.3b sales and $85.4m EBIT in FY2007 in FY2007 in FY2007 • 107 retail stores and 9 Harris Technology business centres • 602 stores • 182 Kmart stores and 267 Kmart Tyre & Auto outlets Retail Support (shared services including finance, human resources, IT, supply chain and property) 6.3 Overview of operations Coles Group consists of three key businesses: ENB, Target and Offi ceworks. The operations within the ENB include Supermarkets, Coles Express, Coles Liquor and Kmart. Everyday Needs Business (a) Supermarkets The Supermarkets business comprises the Coles and Bi-Lo brands, supported by a single back offi ce function incorporating centralised fi nance, administration, operations, marketing and buying functions. As at July 2007, there were 674 Coles branded stores across Australia. The network ranges from small metropolitan stores to large fl agship sites, with selling areas of approximately 160m2 to 4,000m2. The average Bi-Lo store size is smaller than Coles, with the network focused on local neighbourhoods and regional areas. During FY2007, 129 Bi-Lo stores were converted to Coles Supermarkets in a strategy aimed at improving the consistency of the customer value proposition and reducing costs. Following lower than expected sales from converted stores, the Bi-Lo conversion was placed on hold in April 2007. As at July 2007, there were 71 Bi-Lo branded stores across Australia. (b) Coles Liquor Coles Liquor operates a range of liquor retailing formats encompassing three major brands, the 1st Choice liquor superstore, the Liquorland convenience offer and the specialist chain, Vintage Cellars. As at July 2007, 1st Choice operated 39 stores, Liquorland 621 stores and Vintage Cellars 89 stores. A further 2 stores traded under the Quaffers’ banner. Coles Liquor also operates a network of 85 hotels, predominantly located in Queensland. This business substantially increased in scale following the acquisition of the Hedley Group during 2006. 40 INFORMATION ABOUT COLES GROUP 6 (c) Coles Express Under an exclusive alliance agreement with Shell, Coles operates 602 Coles Express fuel and convenience stores across Australia as at July 2007. Coles Group supermarkets, Liquorland and Kmart customers who make purchases over a certain amount are entitled to receive a fuel discount. (d) Kmart Kmart is a discount department store retailer offering a wide range of low cost merchandise ranging from apparel to hardware and leisure goods. As at July 2007, it operated 182 stores in Australia and New Zealand. Kmart stores typically range in size from 4,000m2 to 7,000m2 and are mostly located in suburban shopping centres in major cities and in larger regional shopping centres. Kmart also operates Kmart Tyre & Auto, a leading auto services provider with an extensive network. As at July 2007, there were a total of 267 Kmart Tyre & Auto Service outlets. Target Target is a discount department store offering on-trend, fashionable apparel and soft homewares. Apparel is a key focus of the product range, with Target aiming to position itself as an alternative to specialty fashion stores. As at July 2007, Target operated 268 stores in Australia with 152 Target stores and 116 Target Country stores. Stores range in size from Target branded 13,000m2 stores to Target Country branded 400m2 stores, enabling the business to access a wide range of customers in metropolitan and regional areas. Offi ceworks Offi ceworks is Australia’s largest retailer of offi ce products targeting home offi ces, students and small to medium size businesses. Offi ceworks operates a national network of 107 stores as at July 2007. Offi ceworks also operates Offi ceworks BusinessDirect selling offi ce products direct to customers via phone, fax and online, and Harris Technology a specialist technology provider for small to medium size businesses. Support services Each of the Coles Group businesses utilises a common platform of support services. These support services cover a range of activities including supply chain, information technology, property, human resources, fi nance and other administrative head- offi ce functions. Currently Coles Group is in the process of implementing two business programmes aimed at improving the services and cost structure of these support services. The transformation program, commenced in September 2003, centred on improving the fl exibility and effi ciency of Coles Group’s supply chain and information technology along with cultural change throughout the organisation. Regular updates on progress against transformation programs have been provided to shareholders, most recently on 19 September 2007. There has been signifi cant rationalisation of the distribution centre network and new systems for warehouse management, transport management and international supply chain management have been introduced.