2 Nuggets of News in Australia #2

Today you get to consume your nuggets in the form of Consumer Goods and Telcos.
2 delicately hand-picked nuggets of information explained in terms both you and I can understand. Cut through the technical BS and find out about the essentials of life, from an Australian perspective.

Groceries.
Woolworths reveals its $560m fully automated warehouse in Victoria due to operate in February 2019.
1. This will be the largest and most advanced distribution warehouse on this half of the world.
2. The facility can operate 24/7 with 150 less staff at far greater efficiency.
3. There is capacity to stock up to 220,000 “Stock-keeping units” (which is how quantity is measured in distribution terms) compared to 6500 in a conventional centre.
4. On top of efficiency in the distribution centre, this technology uses machine learning to pack optimal combinations of items onto pallets & trucks.
Good effort Woolies, but does the investment stack up?
The technology can’t automatically do home deliveries just yet, but it is good enough to save Woolies a bucketload of money.
1. Optimal combinations means store staff can theoretically shelve all items in the aisle from a single pallet, reducing the time needed to move pallets.
2. Assuming back-of-store staff can be reduced by 2 across 400 stores in Victoria in addition to 150 lesser staff at the distribution centre, that’s $50.5m a year in savings.
3. In an industry rife with price wars, the cost base is king. The efficiency of the cost base is shown using the gross profit margin (gross profit / revenue) where gross profit is (revenue — cost of goods sold).
4. For comparison, Coles has a 31.6% margin compared to Woolworth's’ 29.5%. Rolling out this technology will be very beneficial to Woolworth’s competitiveness.
Now to you, how will competitors fare?
(Hit me up with a response below)
1. Coles will eat Woolies for breakfast and double their investment into technology
2. Amazon’s going to have trouble entering into Australian groceries
3. A measly $50.5m cost savings isn’t going to beat Aldi’s German efficiency
4. Lance you have no idea what you’re talking about

Mobile Phones.
Telstra’s stuck in an endless NBN nightmare amidst lowering revenue forecasts.
1. Telstra has cut revenue guidance for 2018–19 by $300m, although keep in mind the new forecast is still a sizeable $26.2bn — $28.1bn.
2. They’ve blamed continued delays in getting businesses & households connected to the NBN.
3. A lower number of connections made means that NBN makes lower one-off payments to Telstra for making the connection.
4. Despite this, the share price rose just over 3%.
We’re thinking the same thing, why on earth would the share price rise?
1. Always remember that to make big wins, you want to bet on unpopular opinions that turn out to be right.
2. No one thought Telstra was going to hit revenue targets with the stream of delays they faced in the years prior. It was only a matter of how much they miss the target by.
3. Turns out, missing by $300m is better than what most people thought and thus the share price increase.
The Telstra driven roll-out for NBN could use some explaining.
The NBN (National Broadband Network) promised higher speeds by replacing existing copper wires with fibre wires.
1. Telstra was commissioned to implement this change, targeting 8 million household connections by 2020.
2. However, replacing everything with fibre wires was way too expensive.
3. Since then, they’ve had to change to a hybrid solution (HFC) where copper wires are still used for the section closest to the house, reducing both max internet speed and cost of installation.
Today, your opinion matters.
Which nugget did you enjoy more?
- Team Groceries
- Team Mobile Phones
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