The Wesfarmers/Coles investor briefing in Sydney this week must bring back many memories of previous management changes at Coles. The mandatory dialogue always includes the mistakes of the past, the things that customers, suppliers and staff are telling the new management, and of course how everything will change for the better.

There is no doubt that these presentations are delivered with passion and belief that the things that need to be done will turn the enterprise around and satisfy the needs of all stakeholders in the future.

Coles probably more so than other businesses, has experienced this cycle many times in the past 20 years. More often than not new management does not bring new ideas, but instead brings a new way of execution such as culture, executives, business structures, store format, and so on.

The Coles/Wesfarmers update to the market was compelling. No one could argue about the mistakes of the past and, more importantly the things that need to be done to fix the business.

The problem arises when most of the things that need to be done, have always needed to be done. They have been discussed in the past as needing to be done and now appear as being big ideas for the future when in fact they are things that previous managements could not accomplish.

Coles’ current problems have arisen not because numerous previous managements didn’t have good ideas but because they could not or did not have the ability to execute those ideas effectively.

The Wesfarmers/Coles presentation made a lot of reference to the current problems being caused by short term thinking for short term profits, which partly explains the pressure that public companies are under to generate short term profits.

The presentation to analysts was reassuring in that Wesfarmers CEO said he was pleased with progress to date and the presentation did not mention any change to the five year forecasts.

New management will be under pressure to justify the new ideas and the returns in the years going forward. Coles is a huge business and five years is not a long time. (WOW have been on the same strategy for 20 years).

The question in the long term will be how Wesfarmers will react if the profit forecasts begin to be threatened? Will it be back to the revolving door of increasing prices, reducing capital and in the end not being able to execute the ideas? Or will they see it through even if the past decides to revisit the new round of management.

Coles new management has correctly identified the damage that the short term profit gains of the past have created in the business. But have they learned this lesson for the future?

Peter Fray

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