Coles shares drop on automation cost blowout

The news: Shares in Coles Group dropped nearly 3% in early trading after the supermarket giant flagged a blowout in costs due to delays in the construction of two automated customer fulfilment centres.

The numbers: Coles said the delays in construction of the two centres in Victoria and NSW by the UK’s Ocado Group are likely to increase project capital cost by $70 million and operating expenditure by another $50 million. Coles shares were down 2.9% at $17.11 in early trading on the ASX.

The context: Ocado has delayed handover of the Victorian site due to additional works being required to rectify construction issues with the grid, with ramp up now set to start a year later than planned in mid-financial year 2025. The NSW site ramp up will begin near the end of FY2024 compared to a previous estimate of mid-FY24. The two highly automated customer fulfilment centres, being built at a total capex cost of $400 million, will be used to pick and pack online grocery orders ahead of delivery.