Coles faces Ocado delivery and cost blowout

afr.com:

Coles Group is on the hook for a further $120 million in costs and 12-month wait following a major delay in the commissioning of its Ocado pick-and-pack fulfilment centre being built in Victoria.

In March 2019, Coles and UK-based e-commerce company Ocado signed an exclusive service agreement for the development and construction of two fulfilment centres in Victoria and New South Wales. The highly automated 30,000 square metre sites use 1000 robots to pick and pack online grocery orders ahead of delivery.

Coles Group is facing a major cost blowout with its new fulfillment centre in Victoria being built by UK-based Ocado. Jason Alden

Coles said on Friday that Ocado flagged delays for the handover of the Victorian site after additional works were required to rectify construction issues with the grid identified during quality control processes. This will delay incremental ramp up which is now expected to start mid-financial year 2025 – a year later than planned.

“The timing for the New South Wales CFC being built by Ocado is expected to be commissioned with an incremental ramp up period commencing end 2H FY24 (previously 2H FY24),” Coles said in a statement.

Coles flagged in April delays affecting construction of the fulfilment centres, but it was still being determined what this meant for the timeline.

The retailer said the project delays are likely to increase capital and operating expenditure by approximately $70 million and $50 million respectively. The additional capital investment will continue to be managed within Coles’ capex.

Total capex is now expected to be approximately $400 million, of which 55 per cent was incurred at the end of fiscal 2023, and the balance expected over the following two financial years.

The