The Coles supermarket group says it will set itself up for long-term growth by cutting $1 billion in costs from its business over the next four years through the better use of technology and automation, while cutting staff in office roles.

Coles chief executive Steven Cain said the savings were needed to offset rising costs such as energy and wages, and warned the company faced the toughest competitive environment in its history as new discount competitors such as Kaufland arrive in Australia and online traders like Amazon grow.

Coles CEO Steven Cain. Credit:Simon Schluter

Coles' shares shot up as much as 6.5 per cent in early trading, and closed at their highest level since the business demerged from Wesfarmers and listed on the ASX as an separate company in November.

Chief executive Steve Cain said on Tuesday that its other financial priorities were to deliver a dividend payout ratio of 80 to 90 per cent underlying earnings, and to maintain its market share, if not grow it.