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Australian retailer Woolworths has spoken more about its new automated distribution centre, which we highlighted in April 2018. The DC isn’t due to open until February 2019 but is being tested now.

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Woolworths is building a new fully automated distribution centre in Melbourne that is expected to be operational later this year.

Largest distribution centre in Australia

The new facility is costing AU$215m to build and will be located on a 15.9 hectare site in Dandenong South, 35km south of Melbourne's CBD. Once live, it is believed that the warehouse will be the largest distribution centre in Australia, stocking more products than both Woolworths' Sydney and Brisbane distribution centres combined. The centre is expected to supply most of Woolworths' stores across Victoria.

Costs savings of up to AU$45m a year

A major feature of the new centre will be the use of new technology and automation, which some analysts believe will deliver annual cost savings in the region of AU$45m. The facility will include robotics, over 14km of high-speed conveyor belts and multi-storey racking systems that will be able to move products in both a faster and more productive manner. This will deliver cost savings and productivity gains both within the DC, as well as in stores, where goods could arrive already sorted to be pushed straight out onto the shop floor. Other cost savings will be realised through the largest solar installation in Australia, which will generate power equivalent to that of 250 homes. 

Fully operational sometime in 2019

Although it is understood that Woolworths has started testing the new robotics and systems, the retailer will be keen that the new technology is working correctly before the centre is fully operational. At full capacity the facility will be able to operate 24 hours a day, seven days a week, marking a significant step forward for Woolworths.

Woolworths has reported H1 sales up 3.8% to AU$29,807m and earnings before interest and tax (EBIT) up 9.9% to AU$1,430m.

Australian Food sales up 4.9% to AU$19,339m

Woolwoths' Australian Food business has benefited significantly from the retailer's stronger focus on the customer in H1, with its Voice of the Customer (VOC) scores showing overall satisfaction reaching 82%, compared to 78% for the same period last year. Like-for-like (LFL) sales grew 4.9% in the half despite the retailer's investment in lowering prices resulting in 2.0% price deflation, with 4,200 items now included in its Low Price Always or Prices Dropped campaigns. In-store improvements also continued at pace with 37 renewals and 35 upgrades during the half, as well as its latest flagship concept being launched at Marrickville in Sydney a few weeks ago. During the half 10 net new stores opened, including one Metro.

Investment in supply chain operations

Huge sales growth in online grocery has been driven by a number of factors, not least the creation of WooliesX in June, which is tasked with investing in digital and data to drive an enhanced and seamless expereince. Pick up services have been rolled out to over 1,000 food sites in H1, improvements have been made to the speed and expereince on, plus second and third online customer fullfillment centres have opened in Brookvale, Sydney and West Footscray, Melbourne. The retailer will further look at accelerate this area in H2.  

Woolworths in Australia will step up its online service and offerings as Amazon enters the market.

Woolworths to open four dark stores

Woolworths has launched a number of different initiatives during the last three months including the country's first nationwide grocery Pick Up service and enhancing its supplier portal. Its latest announcement is to open four 'dark stores' to solely pack and ship online orders. These stores will be closed to customers and are expected to open by the end of next year.

Ready to compete with Amazon

Amazon will offer products sold by third party retailers selling via Amazon, as well as products bought from manufacturers and suppliers sold by Amazon themselves. Their marketplaces frequently offer discounts to drive sales and engagement. Woolworths' chief executive, Brad Banducci, said 'We track pricing against all of our competitors [...] making sure our customers get a good deal every time they shop at Woolworths, so it’ll be part of our price tracking no doubt'.

Woolworths' chairman, Gordon Cairn, warned manufacturers, 'If they go onto Amazon and Amazon cuts prices substantially, what that forces other retailers to do is reflect on whether they should be stocking the brand if they can’t do it and make money [...]'. Cairn highlights service and consumer understanding to become even more important, 'We want to be obsessive about our customers, their needs and how we serve them better [...] if we do not we will lose out to those who do, like Amazon'.

Competitive retail landscape

We have seen many of the leading retailers in Australia announce new initiatives and strategies to combat the increasing competition in the market. Coles for example, are experimenting with their delivery options, teaming up with Deliveroo and Uber to optimise its delivery strategy to stay competitive. Meanwhile Metcash and Costco are looking to implement online websites to drive growth and maximise profit margins.

Woolworths is now out growing fierce rival Coles for the first time since Wesfarmers acquired the business. It will hope that its initiatives will continue the strong momentum that it's gathered and combat Amazon's entry to the market.


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