Coles Group says a $120 million blow-out on the construction and 12-month delay on the commissioning of its Ocado customer fulfilment centre (CFC) in Victoria, is due to construction issues found during quality control processes.
It is the third delay since the project was announced in 2019 and launched in 2020. Coles struck a long-term lease with UK-based Ocado Group to implement its end-to end online grocery platform, automated single-pick fulfilment technology and home delivery solution.
The Victorian CFC was initially earmarked for delivery in FY23, but in February 2022, it was pushed back to FY24, due to impacts from the Covid variant Delta on the construction industry and changes to Coles’ ecommerce strategy.
In February 2021, Coles announced a strategic ecommerce update saying it would build seamless customer focused digital capabilities. It said over the previous 18 months it had invested significantly in its digital platforms, including investments in platform stability and the unified shoppable App.
Those initiatives, combined with the rapid acceleration in ecommerce revenue and penetration due to Covid, triggered Coles and Ocado to update their agreement regarding integrating the Ocado Smart Platform with the new initiatives.
The decision was Coles would manage the online store and web presence for the intake of orders, and Ocado would provide OSP automated fulfilment functionality through the CFCs and store pick channels, as well as last-mile solutions.
At 1HFY23, then CEO Steve Cairns said, “the fit out of these facilities, especially the hive and grid, are unique in Australian requiring complex construction management work systems to be developed and implemented.”
By 3Q, Coles said delays were ongoing and it was working to determine what impact the delays would have on previously advised construction timelines.
Ocado told Coles timing would be delayed because works are needed to correct construction issues with the grid that were picked up during quality control processes.
The Victorian CFC is now not expected to be commissioned until mid-FY25.
Coles said it expects the delays to cost around $70 million in project capital and $50 million in operating expenditure. Total capital expenditure is expected to be $400 million, with 55 per cent incurred by the end of FY23.
It was originally expected to cost $150 million, and then $330 million after Coles added extra components, like a bakery and fresh produce cutting room. These two additions have been completed.
In April, the retailer opened its automated distribution centre in Redbank, Brisbane. It uses Witron technology and was the first of two to be built (the other at Kemps Creek, Sydney). Coles invested more than $1 billion in the two sites. The Kemps Creek build is on track to be commissioned in 3QFY24.
