Domino’s investor trip to Germany and France highlighted the role of online food aggregators is significant and partly explains the weakness in France and strength in Germany. Franchisee profitability can lift with higher order count which will be driven by product innovation and growth on the aggregators. While we are more positive, we have two notes of caution. Firstly, we expect the company to step back from the timelines for its long-term store growth and store growth may be 3%-5%, not 7%-9% per annum. Secondly, consensus expectations for sales growth and margin expansion need to be lowered over the next three years.

Woolworths hosted a tour of its Melbourne South Regional Distribution Centre (MSRDC). This highly automated DC opened 2019 but COVID-19 delayed any inspection of the site. Woolworths spent over $560 million, including capitalised lease costs, and we estimate the return on investment at 7%-9%. While Woolworths has a different partner to Coles, we expect a similar outcome in terms of cost per case in the automated DC and a similar return on investment. The shift to automation comes at an important time for the supermarkets given escalating wage cost growth. While these DCs are impressive, they are more likely to offset to wage pressures than lift profit margins.

Coles Redbank ADC will have 33% lower operating costs compared with the two DCs it is replacing. The physical footprint is also 50% smaller. Coles is consolidating all 18,000 ambient SKUs into the one site and the ADC will build pallets specific to each aisle of a store. The Redbank DC will ramp up to a typical 2.7 million cases per week and can manage up to 4.0 million in peak periods.

Once the NSW equivalent DC, Kemps Creek, is operational in the March quarter of 2024, Coles will have halved its ambient DC footprint in NSW and QLD but have twice the DC capacity

Costa held a site tour of its expanded Guyra, NSW tomato growing facility. The company has added technology in propagating, growing and packing that will improve yields and lower costs per kg. The medium-term opportunity is growth in snacking tomato sales which generate a much high price per kg and could add up to $40-60 million to revenue on our estimates. See the report for more insights about its expanded facilities.