J.P. 摩根-亚太地区-零售行业-澳大利亚零售业：在线增长支持Coles和Woolworths共享但选择了不同的实现模式-2019.11.11-21页 (2).pdf

Asia Pacific Equity Research11 November 2019 Retail Sector Online growth to support Coles and Woolworths share,but different Fulfillment models chosenAustraliaAustralian Consumer SectorShaun Cousins AC(61-2)9003-Bloomberg JPMA COUSINS J.P.Morgan Securities Australia LimitedShalin J Doshi(91-22)6157-J.P.Morgan Securities Australia Limited/J.P.Morgan India Private LimitedEuropean Media&InternetMarcus Diebel(44 20)7742-J.P.Morgan Securities plcSee page 16 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment Online is a growing segment of Australian grocery retail.Coles and Woolworths enjoy higher online share vs overall share and the growth of online should support their overall share,although not all is expected to be incremental.Online growth is expected to remain EBIT-margin dilutive for Coles and Woolworths,while the store network size and store size to be optimised.The partnerships chosen by Coles(Ocado)and Woolworths(Takeoff)reflect the respective existing capabilities.Ocado provides Coles a total solution,a global network and lowerpicking costs via its 2 CFCs yet Coles has transferred much control over to Ocado and significant change is unlikely until FY23(advantage Woolworths).Takeoff MFCs have higher pick costs but complement the existing varied Woolworths fulfillment approach and supporting same day delivery as it is closer to the customer,while Woolworths retains control of its more developed online offer.Online grocery retail in Australia.Online is 2-3%of grocery retail in Australia and is forecast to be 3.7%by 2023(IGD).Yet this estimate market share could be conservative,with growth rates high(30%and 34%for Coles and Woolworths in FY19,respectively),and it already comprising 4.0%and 4.5%of sales for Coles and Woolworths in 1Q20,respectively.Online to augment existing strategic position of Australian retailers.Online is a channel for grocery retailers rather than a strategy per se.Aldi(lowest cost,lowest price and treasure hunt general merchandise)and Woolworths(convenience Metro,online and stores,fresh and range)have clear strategic positions in Australian grocery.Coles(cost,private label and online)and Metcash supplied independents(convenience,differentiated strategy by local catchment)have strategic positions that are less certain and could see market share donation continue.Impact of online growth on Australian grocery retailers.(1)Coles and Woolworths have a higher online market share vs overall grocery market share and this should support overall grocery market share given the growth of online.(2)Coles and Woolworths online sales growth is unlikely to be all incremental as they hold high market shares,although B2B is an area of opportunity.(3)Online is EBIT margin dilutive for Coles and Woolworths;improvements are expected but expected to remain a dilutive channel despite new partners.(4)Coles and Woolworths store network size and store size can be optimised due to the growth of online,although stores remain more important to Woolworths.Fulfillment models pursued and partners chosen by Coles and Woolworths.(1)The partnerships chosen by Coles and Woolworths reflect the respective online capabilities and the degree partners are required to augment their existing offer.(2)Significant improvement of the Coles online offer due to Ocado wont occur until FY23,which allows Woolworths to sustain its existing head start in online.(3)Ocado provides Coles a total solution with lower picking costs but larger capex in centralised locations and greater control ceded;Woolworths is adopting a more varied approach and has ceded less control,with Takeoff allowing it to be closer to the customer albeit with higher picking costs.2Asia Pacific Equity Research11 November 2019Shaun Cousins(61-2)9003- In this note we review the online operations of the grocery retailers in Australia,and are joined in this analysis by our Ocado(OCDO LN)analyst Marcus Diebel who has recently conducted a deep dive on the company.Online Grocery Retail in AustraliaCurrent state of online grocery retail in Australia Online share of total grocery in Australia can be difficult to determine yet it is low single digits according to a variety of sources.Based on Quantium data it is 3.2%of total grocery sales.Based on IGD data it is 2.3%of sales in 2018 and is forecast to grow to 3.7%in 2023.Despite strong growth,as noted below,share remains modest.Reasons for this include previous examples of poor service(product substitution and delivery failures)which has eroded consumer trust and some consumers enjoying food retail shopping,especially in fresh where there is greater involvement.Coles and Woolworths performance Sales For the two main grocery retailers in Australia,Coles and Woolworths,it is 4.0%and 4.5%of total sales as of 1Q20 and exhibited growth of 30%and 34%in FY19 as per the table below.Indeed,online comprised 31%and 32%of FY19 LFL sales growth for Coles and Woolworths,respectively(see Appendix).Table 1:Online Food sales(A$m),growth and penetration for Coles and Woolworths 1H182H18FY181H192H19FY191Q20WoolworthsTotal Food Sales19,436 18,153 37,589 19,909 19,659 39,568 10,663%growth2.4%8.3%5.3%7.8%LFL growth5.0%3.7%4.4%2.2%3.8%3.0%6.6%Online Food Sales535 545 1,080 681 763 1,444 480%growth27.2%40.1%33.7%43.2%penetration2.8%3.0%2.9%3.4%3.9%3.6%4.5%ColesTotal Food Sales15,525 14,394 29,919 16,053 14,837 30,890 7,705%growth3.4%3.1%3.2%1.6%LFL growth0.9%1.6%1.2%3.2%2.2%2.7%0.1%Online Food Sales410 430 840 550 540 1,090 308%growth34.1%25.6%29.8%23.5%penetration2.6%3.0%2.8%3.4%3.6%3.5%4.0%Source:Company reports and J.P.Morgan estimates.June year end.Some adjustments to FY19 WOW sales due to Summergate.Woolworths also reports its New Zealand Food and Endeavour Drinks(Australian Liquor)online sales.For NZ Food,online is 8.5%of total sales as at 1Q20(7.7%4Q19),up 38%(40%FY19),while for Endeavour Drinks online is 6.5%of total sales as at 1Q20(6.0%4Q19),up 21%(14%FY19).EBIT From a profitability performance online is margin dilutive to the respective Food EBIT for Coles and Woolworths.Coles only achieved online EBIT profitability in early CY2019,while Woolworths has been profitable for some time although it remains at a discount to reported Food EBIT margins.3Asia Pacific Equity Research11 November 2019Shaun Cousins(61-2)9003- Table 2:Historical and Forecast Food EBIT margins for Coles and WoolworthsFY17FY18FY19FY20EFY21EFY22EWoolworths4.47%4.67%4.69%4.70%4.79%4.84%Coles3.89%3.87%3.83%3.73%3.78%3.88%Source:Company reports and J.P.Morgan estimates.June year end.Online fulfillment experience The table below details the delivery price and delivery slot times across Coles and Woolworths,as well as independent NSW-based fresh retailer Harris Farm.Table 3:Online offering for Australian grocery retailers SupermarketMin.orderDelivery priceDelivery slot timesDelivery PassColesA$50A$8-A$14 for Standard;free above A$150-A$300;A$14-A$20 for Same Day Two hour;save with three and six hours for Standard;one and four hours for Same DayYESWoolworthsA$50A$3-A$15;free above A$300;A$15-A$19 for same day Three hours;save with five hoursYESHarris FarmNo min.A$2-A$17;free above A$100-A$180 Three hours;save with five hours-Source:Company websites.Free delivery minimum spend ranges are due to varying delivery window sizes.An area of increasing investment is subscription services.The advantages here include upfront cash payment,the opportunity to achieve consumer loyalty,and an effort to moderate the success of Amazon in Australia including its Subscribe&Save offer and the broader Prime franchise.The comparative offers across Coles and Woolworths vs Amazon are detailed in the table below.Table 4:Subscription services offered by Australian grocery retailersWoolworths-Delivery Unlimited-Subscription service available monthly or annually that covers the cost of delivery fees(typically$10-19),reusable bags($1 per order)and crate($3.50 per order)for any orders over$100 on .au.-First month free as trial,and then charge$19/month($169/yr)for Any Day subscription(all 7days)or$15/month($119/yr)for Midweek subscription(Tues-Thurs only).-Excludes Same Day,Express,Remote and Bulk Order deliveries.Coles-Delivery Plus-Subscription service available monthly or annually that covers the cost of delivery fees(typically$8-20)or any fees for orders collected at Coles Express,for any orders over$100 on Coles Online.-First month is free as a trial,and then charge$19/month for Any Day Saver(all 7 days)or$14/month for Mid Week Saver(Tues-Thurs only).No annual subscriptions currently offered.-Same day delivery fees are currently included in Delivery Plus for a limited time.Excludes Remote Delivery services.A.au-Subscribe&Save-Subscription service which offers free delivery on repeat purchases and a 10%discount on products.Shoppers choose the frequency of products to be delivered,from monthly to six-monthly basis.-There is no subscription fee and users can cancel at any time.Users can save up to 15%,and Prime members can save up to 20%,when receiving 5 or more products in a given month to a single address.-Valid on products included on the Subscribe&Save store,including household,baby care,pet supplies,grocery,health&wellness,and beauty products.Source:Company websites.Forecast growth of online grocery in Australia and other countries According to IGD data,online grocery in Australia is expected to grow at a 15%CAGR over 2018-2023 and increase to 3.7%of total grocery spend in 2023.This remains low compared to global peers such as the United Kingdom yet will be ahead of the United States and Canada.4Asia Pacific Equity Research11 November 2019Shaun Cousins(61-2)9003- Table 5:China,US,Japan present the biggest growth opportunity 2018-2023CountryOnline grocery market size$bnValue growth$bnCAGROnline grocery channel share%2018202320182023China$50.9$196.3$145.4 31.0%3.8%11.2%U.S.$23.9$59.5$35.6 20.0%1.6%3.5%Japan$31.9$46.5$14.6 7.8%7.1%9.9%U.K.$14.6$22.1$7.5 8.7%6.0%*7.9%South Korea$9.9$21.3$11.4 16.5%8.3%14.2%France$11.6$17.2$5.6 8.2%4.5%6.0%Australia$2.1$4.2$2.2 15.3%2.1%3.7%Germany$1.3$3.8$2.5 23.2%0.5%1.2%Canada$0.8$2.1$1.3 21.0%0.8%1.8%Spain$0.9$2.0$1.1 17.9%0.7%1.4%TOTAL$147.9$374.9$227.0 20.4%Source:IGD.*Note:definitions of overall market size may vary between different providers such as IGD and Kantar depending on which retailers are included in estimating the total market size.Figure 1:Projected online grocery market growth$bn-2018-2023Source:IGDFigure 2:Projected online grocery market CAGR-2018-2023Source:IGDOcado quantified a 1-3bn fee opportunity range in markets where partnerships exist if online were to comprise 10%,20%and 30%,respectively,of grocery sales,which is a more bullish range of scenarios currently considered.Figure 3:Ocado sees a fee opportunity of up to 17.5bnSource:Company reports.0306090120150ChinaU.S.JapanS.KoreaU.K.FranceAustraliaGermanyCanadaSpain31.0%20.0%7.8%8.7%16.5%8.2%15.3%23.2%21.0%17.9%0%5%10%15%20%25%30%35%40%ChinaU.S.JapanU.K.S.KoreaFranceAustraliaGermanyCanadaSpain5Asia Pacific Equity Research11 November 2019Shaun Cousins(61-2)9003- Current strategy for Australian grocery retailersBefore considering the plans for existing grocery retailers in Australia,it is worth considering the broader strategy that each is adopting.Indeed,online merely serves as another channel to engage with customers rather than a strategy per se.The clarity and focus of the strategic positioning of different grocery retailers has been a key driver of our investment views towards companies in our coverage,although valuation has been a subsequent and at times overriding factor.We are not confident that Coles has a clear and defendable point of difference that is likely to be successful,which followed a period under former management when it made strategic missteps(value focus at all times despite Woolworths marching on price and Aldi having the lowest price).Aldi and Woolworths have clear strategic priorities and competitive advantages.Aldi has the lowest cost which allows it to offer the lowest prices,while its general merchandise offer provides treasure hunt appeal and some well-known offers(e.g.ski apparel sale).Woolworths could not win on price yet it sought to neutralise price under then new CEO Brad Banducci with that a hygiene factor,with points of difference being convenience(Metro stores,online and wider store network),fresh and range.In contrast,we suggest that Coles and the Metcash supplied independents have less settled strategic positions and hence could see both donate market share.Coles identified areas of competitive advantage are costs(unlikely to be successful due to a higher cost position already vs Woolworths and especially Aldi,with Woolworths to further extend its lead with its automated DC),private label(so far sales and gross profit dilutive due to its overwhelming skew to entry level rather than premium private label although pleasingly that is a growing focus),loyalty(Flybuys,yet Woolworths has more active members),sustainability,and online as per the FY19 sell-side meeting,with this a subset of the Strategic Differentiators detailed in June 2019(see J.P.Morgan research here and here).Table 6:Coles Strategic Differentiators-Win in online food and drinks with an optimised store and supply chain network-Be a great value Own Brand powerhouse and destination for health-Achieve long term structural cost advantage through automation and technology partnerships-Create Australias most sustainable supermarket-Deliver through team engagement and pace in executionSource:Company reports,J.P.Morgan.The Metcash supplied independents are a broad church with a focus on differentiation for local catchments and convenience as points of difference,but a lack of scale makes it harder to execute and it supplies some of the best grocery retailers(e.g.Freyville Foodland SA)and unfortunately some of the weakest grocery retailers in Australia.Given this backdrop of strategic positioning of grocery retailers,we consider how online can support market share and augment the existing strategy.6Asia Pacific Equity Research11 November 2019Shaun Cousins(61-2)9003- Current online strategy for Australian grocery retailers As noted above,both Coles and Woolworths see online as a competitive advantage and a source of strong revenue growth,with it already comprising 4.0%and 4.5%for Coles and Woolworths in 1Q20,respectively.This has seenColes and Woolworths form partnerships with third party providers to augment existing online capabilities to improve their respective offers and drive growth.Coles(March 2019)partnership with Ocado Coles has entered into an exclusive agreeme