Retail automation platform provider Ocado has had more than its fair share of negative news to deal with in recent years – see diginomica passim. Flagship customers such as Kroger and Sobey’s have cut back on their deployments of the firm’s tech after failing to see expected ROI.
But there’s an exception to this seeming trend in the form of Australian grocery giant Coles, which has seen its e-commerce strategy deliver growing benefits over the past few years on the back of its Ocado tie-up, with e-commerce now accounting for nearly 16% of total sales and scaling profitably.
Founded in 1914 with a slogan of “nothing over 2/6”, Coles today operates over 800 supermarkets throughout Australia. Its Coles Online offering was launched in 1999, but remained loss-making for many years. In March 2019, the deal with Ocado was signed, with Coles CEO Leah Weckert saying:
We sought the best global technology in the world to re-imagine the Coles Online experience here in Australia.
The first Ocado Customer Fulfilment Center opened in 2024 in Melbourne, Victoria, followed by a second in New South Wales, 40 kilometres west of Sydney. These are delivering the goods for Coles, says Weckert, physically and it seems fiscally:
We continue to improve the economics with CFCs achieving positive EBITDA for the year. This was achieved through higher volumes, together with operational improvements, including on-grid robotic pickups, auto frame loading and auto bagging, which were all installed during the year. This is an important milestone in only the second year of operation, and it demonstrates that we can deliver a better customer proposition while at the same time improving efficiencies as the business scales.
Digital transformation
It’s all part of a wider digital transformation push that is built around the idea of connecting loyalty, e-commerce and retail media. Weckert explains:
We know customers value offers that are relevant to them rather than simply receiving more offers. During the year, we continued to enhance our digital functionality and increase personalization across the customer journey. Features such as ‘New for You’ and ‘My Weekly Specials’ are making it easier for customers to discover products and value that is relevant to them.
At the same time, our customer data capabilities are helping us create more connected experiences across our app, website and stores. Coles 360 is becoming a more important part of the business. We know that retail media in Australia is a large and growing market. In store, that might be digital screens, Coles Magazine or Coles Radio. On site, it is banners, tiles and videos in the app and on our website. Off-site, it could be YouTube and social media.
The goal for us is to make the right value more visible and help suppliers connect with customers in ways that are useful, relevant and trusted.
And AI, of course
Of course, as is compulsory in 2026, AI is front-and-center in Cole’s thinking, but this is not a recent development, insists Weckert:
We have had AI use cases in the business for around a decade now. The vast majority of those are either machine learning for predictive AI use cases or generative AI use cases. And they have delivered substantial value to us…AI is already well established across Coles and delivering value in many parts of our business.
What has changed recently is the pace of capability and the breadth of where we can apply it. Coles has a unique combination of data and physical assets, millions of customer transactions every week, more than 1,800 stores, 8,000 suppliers, 115,000 team members and 10.3 million active Flybuys members. And we are increasingly bringing together those capabilities to improve outcomes for customers, our operations, and our team members.
For customers, AI is helping us to improve personalization, product discovery and the relevance of our offers. The next wave is conversational shopping and agentic commerce. Over time, we see the potential for customers to engage with us in a much more intuitive way from discovering what they need through to transacting and receiving post-purchase support. Given the scale of our customer relationships, Flybuys and our digital channels, we think this is a particularly exciting opportunity for Coles.
Operationally AI is embedded in decision-making in areas such as forecasting, space and rent optimization, and inventory and store decisions. Weckert says:
We are building towards end-to-end optimization across our supply chain, bringing together decisions across inventory, DCs, transport and replenishment so that increasingly, we can optimize the system as a whole rather than individual decisions in silos.
For Coles team members, AI is being deployed to make everyday tasks simpler and more productive, she goes on:
Our store-specific ranging tool, for example, is a Machine Learning tool that has delivered substantial increases in sales, but also gross margin outcomes for us as we’ve rolled that out and tailored stores in terms of their range store by store.
Coming up
With a number of what she calls “at-scale AI use cases that have delivered substantial value in the business” up and running, attention is now turning to what comes next:
.The big difference that we’re seeing now with the advent of gen AI is just the pace of capability that you can access and where you can apply it…Certainly, in our core operations, we think there’s a lot of opportunity in terms of doing system optimization end-to-end, particularly across the supply chain. There are huge parts of our cost base that if we’re able to even get small benefits, there can actually result in quite substantial savings for us.
The next opportunity is to move beyond individual productivity tools towards function-specific agents and AI embedded directly into everyday workflows. This will help our team members spend less time on repetitive tasks and more time on the work that creates value. Overall, we remain disciplined about where we will deploy AI. Our focus is on areas where it can meaningfully improve customer experience, availability, growth and efficiency, and we’re excited about the opportunities ahead.
AI is also being used to meet the need to remain competitive in the febrile grocery market, says Weckert:
The advent of AI tools has meant that customers are using those to compare prices more than they’ve ever done before, particularly in young families and pre-families, the younger part of our population. So, ensuring that we are competitive week in, week out, for every set of offers that we have, that’s really key for us.Some of that is proactive and some of that is reactive.
Away from AI, ongoing digital transformation will move into the next phase of targeted investment. Development of an $880 million Automated Distribution Center (ADC) in Victoria remains on schedule and on budget. Once operational, this will have capacity to process 4.6 million cartons a week and complete the automation of an ambient distribution network across Australia’s Eastern Seaboard.
A further $300 million is budgeted for store technology by the end of 2028. Weckert says:
These investments will allow us to augment our store footprint, improve the customer experience, create more capacity for online fulfillment and make our stores more efficient. We’ll also continue to simplify our technology and expand the use of AI-enabled capabilities.
Meanwhile Coles recently expanded its partnership with Accenture to create the Coles Capability Center, which is intended to support the enhanced digital and technology capabilities, greater operational efficiency and improved outcomes for the business as well as deliver annualized cash benefits of over $100 million per annum.
We have a clear focus on expanding and renewing our store network, continuing to build our digital and technology capabilities.
