Klas, please begin.
Thank you. Let me, of course, also welcome you to today's press conference. With me today I have Nicholas Pettersson, President of our purchase and logistics company, Dagab. The purpose of today's presentation is to give you some further details of the already earlier announced plans regarding our future logistics center. The purpose is also to give you the opportunity to ask questions for further clarity. Before we get into the Q&A session, let me and Nicholas just start with a quick, short presentation as an introduction, and I'll then move to next page two. In Axfood, we have outlined a clear agenda for future profitable growth. This agenda includes six strategic areas, each of them with some clear priorities. One of the area that aims to mainly improve our efficiency is supply chain. Next page three.
Our key priorities for the supply chain the coming period are, one, implement the common dark store for Willys, Hemköp, and Mat.se with a target to have the Stockholm dark store up and running already this summer. Another priority is to, with a more data-driven approach, take out costs from our system. Lastly, our third priority, hence the topic of today, is to develop an automated logistics center for both store and online in one facility. Next page. What does this mean? We have showed this slide that you have in front of you more than a year ago at the Capital Market Day when we presented the vision Axfood have for how to handle logistics in an omni-channel world. We will automate both the warehouse part as well as the picking.
The new logistics center will support both stores and online, and our plan is to have our first automated logistics center up and running 2023. Next page five. Why are we doing this? Well, first of all, Axfood has high growth ambitions, and we already today see a need to increase capacity in our logistics setup. With an automated system, we also see clear gains in improved delivery quality as well as service levels. By combining retail and consumer picking, we will not only reduce climate impact, but also be more flexible, particularly when it comes to how large the share of sale in online will be in the future. Finally, it's not only increasing our capacity, this will also significantly increase our efficiency. Moving on to next page six.
Even if this is a project that will take some time to implement, we want to keep you informed about our progress, and I am pleased to present today the important steps, which are: One, a supplier for the automation. We have signed a letter of intent with Witron, a world-leading supplier in this area. Two, we've also signed a letter of intent with NREP, who will build the facility and be our landlord. Finally, three, we are also announcing today that we will consolidate six of our current warehouses into the new logistics center. Let's now move into page seven, and with this short intro, I will now hand over to Nicholas Pettersson, who will provide some further details regarding this topic. Nicholas, over to you.
Thank you, Klas. What is new? What are Axfood aiming for? Axfood's goal is to create one of Europe's largest state-of-the-art logistics center for omni-channel retailing. The automation will handle all temperature zones, and the building itself will be more than 600 meters long and 200 meters wide with a ceiling height of 30 meters. Our new logistics center will provide for 60% of Dagab's volumes, as shown on the map by 2023. Next slide, please. As shown on the map, our new logistics center will provide for 60% of Dagab's volumes. As shown on the map, by 2023, we will consolidate volumes from six different warehouses into the new center in Bålsta. Why Bålsta? To find a strategic place for the center, several center of gravity analysis were made. Every analysis used different factors as input, such as customer demand and assortment, geographic suitability, and the environmental impact.
The result showed that the center should be located northwest of Stockholm, Bålsta. As you can see, the total square meter will increase from [150] to 100,000, and yet the facility will enable further increase in capacity by at least 40%. As I mentioned before, it will provide for both store and online picking, and that's due to the high level of automation. We will be working closely together with two partners in this project. Next page, please. When it comes to automation, as Klas said, Witron will be the selected automation supplier. Witron is an innovative market leader in dynamic warehousing and picking.
Witron has also extensive experience of large-scale automation within food retail in Europe and in the rest of the world. Witron has also several relevant references with proven solutions, and we mentioned in the press release today that we have written an LOI with Witron, and the next step now is to finalize the design and the contract negotiation. Next, please. When it comes to the selected real estate service provider, we have chosen NREP. We have also written an LOI with NREP. NREP has extensive know-how in retail logistics. They're very good in development of logistics operation and have good customer reference. NREP has a flexible property with possibility to expand, which also is strategic important for Axfood and the future business of Axfood. When it comes to logistic center, it will be a long-term lease and, of course, it will be environmentally certified. Next. Thank you.
Now it's you, Klas.
Thank you, Nicholas. Now before we move into the Q&A session, let me end this part of the presentation with a few comments regarding the financial impact. We are now at page 11. We have, as I'm sure you're all aware of, previously communicated that the automation would require an indicative CapEx of SEK 400 million-SEK 600 million per year for the coming four years. With now the solution with Witron, we estimate that we will be in the higher range of this span. We have ongoing discussions with several banks as we plan to finance this by credit facilities. We have now entered a letter of intent with Witron, as Nicholas said, and we will now move into the planning phase as well as finalizing the contract. This phase will give us the final details, and if needed, we will provide with further information.
The plan is to have the details on the contract signed in early fall 2019. However, I already today would like to share with you that the business case for this investment is very positive. We estimate that our share of cost for logistics 2023 will be in line with current level. This includes both lease and increased depreciation. As this is highly automated, we will get a positive economy of scale when our volume increases. We estimate that share of cost for logistics the coming year after 2023 will be reduced as we continue to grow. I have to say, before you ask me with how much this will decrease, I want to state that this is something we will not be able to comment on today as it also depends on many variables including example giving sales mix and channel growth.
With this, we want to open up for questions and if you have questions to both myself and Nicholas, I hand over to the operator who will coordinate your questions. Over to the operator.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Our first question comes from the line of Niklas Ekman from Carnegie. Please go ahead.
Thank you. Yes, first question here. I'm just curious because looking at the pictures and looking at some YouTube videos here as well from Witron, it looks like they have a very capable solution for fulfillment to stores. I'm curious how you will adjust this for e-commerce picking, so picking of individual orders. Is this something that Witron has extensive experience of? Can you provide some more details on how these two will be linked together?
I can take that question. Yes, I think Witron has extensive experience of online picking. When we are looking into the solution, we are very satisfied with the solution. There's been some work to do to finalize the solution and the design, but we are confident that this will be a high-tech solution for the future which will suit the customers for Axfood's purpose and Axfood's business.
Okay, thanks. A second question. I'm curious, these SEK 400 million-SEK 600 million per year, what exactly does that cover? Will there be a revenue-based fee or volume-based fee going forward? Or will these investments in excess of SEK 2 billion here for the next few years, will that basically pay off the entire investment in this new fulfillment center? Just to understand here whether there will be continued costs going on after 2023 related to this.
Yeah, Niklas, Klas here. I'll try to respond on that as even if I said details, well, I cannot go into that as we're not signed the final contract. The model is that this is an investment we do. We have no revenue share or something like that afterwards. As I said, we will be on the higher end of the scale, SEK 400 million-SEK 600 million. That will cover the automation part, just to be clear, so that will cover how we are structuring with Witron and then we will then have the lease for the building facilities. As I said, the lease and the depreciation that will be covered in this will be over 2023. We'll have the share of cost for the logistic will be in line what we have today.
Okay, excellent. It sounds like construction of this will start in 2020 rather than 2019, you've already indicated the CapEx, I think, would be some SEK 600 million related to this project. Can you say something about what that CapEx relates to?
Well, obviously when you start, there will be some setups as when you're starting the work. You will have that will start. We will get going as quick as we can now, and get ourselves set for the project. As you know, we have some initial costs as well when you start with working with it.
That's excellent. Thanks for taking my questions.
Just as a reminder, if you do wish to ask a question, please press the zero one on your telephone keypad now. As there are no further questions, I'll hand back to the speaker.
Thank you. I see that we have got one question coming in over the webcast. The first one, does it include some OpEx, i.e., not running at full capacity at the beginning? Secondly, how many SKUs will the logistics center cover? I don't know, Niklas, if you want to start with SKUs?
I can start with the SKUs. Our plan is to have 22,000 SKUs in this building, when it comes to assortment. That's the plan of what the DC will cover.
Yeah. The question comes from Fredrik Ivarsson. If I understand the first question, if it includes some OpEx, are you not running at full capacity at the beginning? As stated, what we have in the business case, with the volume that we forecast today, is that we will already be at par with where we are today with the shared cost with this operation. Now obviously the more volume we then get as we have an automated solution, we will become more productive and more efficient, and that will reduce the cost. Already today, we are in line with where we are today. We also have got another question from Andreas Lundberg on the webcast. How does the depreciation scheme look like?
To not go into the details on that, because that will be finalized when signing the contract, but as we have indicated before, we look at a 15-year average depreciation for this investment. I think the question continues to come in over webcast. How high is the expected yearly rent for the new logistics center? How long is the new lease? Nicholas, you would like to
Yes. We are in the final negotiation with NREP right now, we haven't closed that deal yet. I think we need to come back later on that issue. The other question was? Sorry.
How long is the new lease?
Yeah. We're talking about 20-25 year lease.
The question, how does the new rent compare to rent for current premises? As we are consolidating 6 into one, even if we are not disclosing the rent levels, what we are stating again is that, including the lease or the rent level and the increased depreciation, we will be at par with what we have today. As much as we can release today. Operator, have you got any more questions?
There are no questions on the phone.
I don't think we have any more from the webcast. No, we have one more.
Yes.
The question is when will the six current warehouses close?
Yes. Nicholas here. Our plan is to have an ongoing business in these warehouses until 2022. The plan is to start the ramp up for this new logistics center. Yes.
Okay. I don't think we have any more questions, and I would like to thank you all for listening and for tuning in on our press conference. Thanks, and have a nice evening. Thank you.
This now concludes our conference call. Thank you all.