It seems like the Coles Group Ltd (ASX: COL) shares are following its discount ‘Down, Down’ campaign as it dropped by 4.8% this morning.
This comes after its arch-rival, Woolworths Group Ltd (ASX: WOW) announced a demerger last week, covered by my colleague, Lachlan Buur-Jensen.
COL share price
Coles market share inches up
The CEO of Coles, Steve Cain noted Coles market share had risen by 0.1% to 26.7% in April. Cain believes this is because shoppers are becoming more comfortable going to large shopping centres.
A majority of Coles stores are positioned in big shopping complexes, so it lost market share during the pandemic.
Cain’s focus for the future lies in the pace of change as reported in the Australian Financial Review.
As a result, Coles is heavily investing in technology as well as ensuring its range is more customised to meets community needs.
Robots to take charge
Coles announced it has partnered with British group, Ocado to build automated online fulfilment facilities.
The supermarket giant is deploying $150 million to build two automated facilities in Sydney and Melbourne.
It’s essentially striving to become like Amazon (NASDAQ: AMZN) to achieve efficiencies in its distribution capabilities.
Speaking of Amazon, its newest physical grocery store opening this week will feature the company’s “Just Walk Out” cashier-less technology.
Shoppers sign in when they go into the store and there are cameras and sensors to identify what shoppers put in their carts and voila, customers can walk straight out.
My take on Coles
It’s encouraging to see that Coles is slowly recovering the market share it lost from the pandemic, however, a pricing war with Woolworths still remains.
This market share battle will compress margins, which is why I tend to prefer businesses with pricing power.
However, there are opportunities for supermarkets to achieve efficiencies through technology, which could lead to value creation down the track.
That’s why it’s important to monitor the return on capital/investment to determine whether businesses are generating value for shareholders.
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