Coles is planning job cuts for free up funds for its food business. Coles plans to cut between 500 and 600 jobs from its head office in Melbourne as part of a renewed efficiency drive aimed at freeing up funds to reinvest in reducing food and liquor prices.
The job cuts are expected to be announced in Melbourne on Wednesday by new Coles managing director John Durkan, who is also expected to announce a shake-up in senior management ranks.
It is understood that several senior executives who joined Coles five or six years ago after Wesfarmers’ $20 billion takeover are parting ways with the retailer as Mr Durkan puts his stamp on the business after taking the helm in July from Ian McLeod.
“The new managing director wants to reinvigorate the business and get some fresh thinking in,” one source said.
Coles spokesman Alister Jordan was not available on Tuesday to confirm the job losses, which could represent 15 to 20 per cent of the 3000-strong workforce at Coles’ Tooronga headquarters.
Mr Durkan told investors last month that, faced with continued cost pressures, Coles needed to simplify things and reduce its cost of doing business, which remains well above that of rival Woolworths.
“It’s high on the agenda and it’s a significant opportunity,” Mr Durkan told investors at the release of Coles’ full-year profit results.
“Lower prices remain just as important today to our customers as ever. Combined with the increasing cost pressures we’re facing, it is clear that Coles will need to continue to invest in value and drive efficiencies across our supply chain and stores for future growth.”
At the same time, Coles is planning to ramp up capital investment in new stores, spending $1.1 billion over the next three years building 70 new supermarkets and creating more than 16,000 jobs – 8500 retail jobs and 8200 construction jobs.
The job cuts to be announced this week are the largest since Wesfarmers took control of Coles in 2007 and are mainly in back office functions including payments, accounts and IT, rather than in customer-facing roles.
Coles is believed to be planning to outsource its IT department – sending some functions offshore – emulating suppliers and competitors such as Pacific Brands.
Australian Services Union Victorian branch secretary Ingrid Stitt said the union had not been notified of the job cuts and was seeking information from Coles about redeployment and training opportunities for staff.
“It’s of grave concern to us that this number of jobs will be lost – if a lot of these jobs are going to end up offshore, that is a really worrying trend,” Ms Stitt said.
Sources said the number of people employed at Tooronga had increased dramatically over the past few years.
The job losses would deliver significant cost savings, some of which would be invested back into reducing grocery prices.
However, analysts said Coles had to make sure it did not cut costs too deeply.
“Six hundred people is a lot of people if they’re trying to grow the business,” one analyst said.
Coles has cut costs in supply chain, logistics and stores, closing about 20 distribution centres over the past five years, optimising transport and reducing shrinkage by more than 30 per cent.
“The low hanging fruit has been picked – now they are looking at other areas,” another source said.
Mr Durkan has also flagged an end-to-end supply chain restructure, from suppliers to stores, and a new workforce management system that will simplify rostering and ensure Coles has the right levels of store staff at the right times.
He says Coles has improved earnings and returns dramatically over the past six years but still lags behind global retailers in measures such as sales per metre of floor space, freshness, supply chain efficiency and the cost of doing business.
“We can move the dial quite considerably, and on some of those things we can be world leaders,” he said in a speech to investors in May.
Coles’ food and liquor margins rose from 4.9 per cent to 5.3 per cent in 2013-14 but remain well under those at Woolworths, where food and liquor margins rose from 7.6 per cent to a record 7.9 per cent in 2013-14.
Mr Durkan also plans to further improve Coles’ fresh food offer, boost store service with a new point-of-sale system and add more financial services products.
The Napthine government has previously trumpeted Coles’ investment in Victoria.
Premier Denis Napthine was joined with Coles Managing Director Ian McLeod in February and boasted that the supermarket giant had created 3500 new jobs and boosted the Victorian economy.
A spokesman for the Premier said on Tuesday that the government would not be providing any comment without confirmation from Coles.
Wesfarmers shares rose 43¢ to $43.73 on Tuesday.
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