Coles Group Limited (ASX: COL) is running a pilot with Uber Eats according to the AFR, could this boost the Coles share price?
Well, on the day of the Coles-Uber Eats news breaking the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) is down 0.54% yet the Coles share price is down 1.33% – so clearly the market isn't too excited about the idea.
What are Coles and Uber Eats doing?
The AFR has reported that, in a world first, Coles and Uber Eats are running a pilot program in the Sydney suburb of Pagewood to see if there is demand for Coles ready meals and semi-prepared meals to be delivered for customers who want healthier options, but don't want to pay high prices.
A Coles team will put together the order at the supermarket, give the order to Uber Eats driver who will deliver the order for a $5 delivery fee in less than 30 minutes.
The appeal of this service for customers would be that instead of paying $18 from a local takeaway chicken place for a whole chicken, the Coles chicken would cost less than $10. Coles plans to launch a wider range of convenience foods for customers to choose from.
It remains to be seen how successful this will be for Coles considering Uber will probably be taking a hefty slice of the transaction as a fee. It's not as though Coles is operating with exceptionally-high profit margins to begin with.
Is Coles a buy on this Uber Eats news?
It's an interesting move by Coles, but I can't see the volume growth being enough to offset the cost of Coles staff picking the food and the Uber Eats cut of the sale.
Of the things that Coles has announced, I'm more interested in the automated distribution centres the supermarket business plans to build, as well as the idea of putting smaller-format Coles in high-density areas of cities so that they can reach more of the population who want to do a full shop.
I have been impressed by the initiatives Coles has announced recently to compete against Woolworths Group Ltd (ASX: WOW).
Coles is trading at under 18x FY19's estimated earnings. I do think that Coles will prove to be a better defensive investment compared to cash over the next five years.
