Down, down: Coles opened fewer stores and made more money than Woolworths

Here's how Ian McLeod reinvented Coles by going back to retail basics.

Ian McLeod has been called up to the Wesfarmers top floor. He’s passed the reinvention test given to him by the group and now the reins of Coles supermarkets can be handed over to John Durkan.

Under McLeod, Coles has managed to bring its return on capital up to 10 per cent and the key to the chain’s success was going back to retail basics, rather than adding new stores, as Stephen Bartholomeusz discussed yesterday (How Coles became a strong link in the Wesfarmers chain, 19 February 2014).

As the chart below shows, Coles’ main competitor, Woolworths, has continued to grow its number of stores in the past five years (left axis) but earnings per store (right axis) haven’t really benefited. McLeod, on the other hand, resisted opening in new locations and instead focussed on fixing up what had become a broken business.

The result is a compound annual growth in per-store sales increase of 4.6 per cent, compared with Woolworths’ 1.8 per cent. For a business that records over $40 billion in sales every year, that makes a big difference.

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