The workers out at Woolworths sprawling headquarters in Bella Vista feel like they don't see a lot of chief executive Grant O'Brien these days.
Woolies' second profit downgrade in as many months saw O'Brien 'resign' from the top job back in June, just weeks after he spruiked a major turnaround strategy for the troubled retailer.
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Six reasons for Masters' $3 billion fail
How could the masters of Masters, Woolworths and US partner Lowe's, go so spectacularly wrong?
It is a situation analysts and shareholders have referred to as "unhelpful" at best and at worst "bizarre", O'Brien retains his title until July this year when he turns 55 and becomes eligible for the retailer's generous defined benefits pension plan. When O'Brien motors away from Woolies headquarters for the last time, he will be close to $10 million richer courtesy of that pension plan.
Insiders suggest the supermarket's straight-talking chairman Gordon Cairns quietly told O'Brien he didn't need to come in every day. Workers now report he appears absent from the nerve centre of Australia's biggest supermarket chain.
This is strongly denied by Woolworths with a spokeswoman stating that O'Brien was "at work fulfilling his responsibilities to the company as CEO".
"Suggestions that Grant O'Brien has been less than present and available to staff are simply wrong," she said.
Cairns defended the decision to keep O'Brien on the books until the middle of the year at the annual meeting in Sydney, pointing to the chief's close relationship with Bruce Mathieson in liquor and Lowe's, Woolworths' joint venture partner in hardware chain Masters.
Now the axe has finally fallen on the disastrous Masters operation, the pressure is on Cairns to install a new chief and sweep away the vestiges of an aggressive culture.
Rot some time in the making
Bank of America Merrill Lynch analyst David Errington has criticised Woolworths. Photo: Nic Walker
Woolies insiders claim the template was set by former chief Michael Luscombe and his chief financial officer Tom Pockett, who challenged critics of their strategy, targeting individuals including experienced analyst David Errington and hardware consultant Geoff Dart.
Dart, who forecast the huge losses at Masters, was referred to the Australian Competition and Consumer Commission, and they had a "direct line" to Errington's global boss in Bank of America Merrill Lynch's New York offices.
"That was when the arrogance and hubris came into the culture and that was when the seeds of Masters were sown," one analyst says.
"That hubris led Woolworths on the most unbelievable misadventures and it wasn't just Masters ... the state Dick Smith is in today is because Woolworths had it for so long and couldn't do anything with it.
"They let it get to a state where it was just irrelevant."
Supermarkets in super trouble
Illustration: Simon Bosch.
The difficulty for Cairns is O'Brien was part of the team that jacked up grocery prices to offset the mounting losses at Masters and Big W and meet short-term earnings targets that were intrinsically linked to executive pay.
O'Brien lives in shadow of these decisions, says one analyst, and his ongoing presence is at best likely to retard any real cultural change, which will be essential to the revival of the supermarkets.
"If I wanted to create a situation that made a turnaround difficult I would have the outgoing chief in the building," one analyst says.
"You've got this guy, still in the CEO role, who was there when things deteriorated under his watch.
"Cairns could never be as frank about the problems at Woolworths with him around."
Succession not simple
Woolworths food managing director Brad Banducci is seen as a potential candidate. Photo: Louie Douvis
Any new chief must have supermarket experience, one major investor says.
"Cairns hasn't done a bad job but he's not the chief executive officer and I think culture takes a long time to change," he says.
"Turning around the supermarket business will be a 12 to 18-month journey, it's not a quick fix.
"I don't know what shareholders are expecting but it's going to be a bumpy road."
Culture needs to change
Masters stores are too large to generate enough traffic to make a profit, says Geoff Dart. Photo: Glenn Hunt
Dart warned culture had to be the new chief's number one priority. He said the arrogance of the Luscombe years needed to be put to rest and Woolworths needed to get customers excited about the supermarkets business again.
He said "culture would kill strategy every time" and Woolworths' handling of the Masters shutdown pointed to problems.
"Woolworths did a snow job on workers, I spoke to people at home improvement very recently and they said it was business as usual and that came from [Masters boss] Matt Tyson," Dart said.
The Masters boss, who came from the UK's Kingfisher hardware business, was rumoured to be planning an exit from the Masters business as far back as October, a claim he never outright denied.
In the lead up to Christmas there was persistent talk Woolworths' joint venture partner, US giant Lowe's, might take a larger stake in the Masters business to reduce Woolworths' exposure to ongoing losses.
There was even talk Woolies approached Lowe's about taking on the entire business to ensure Bunnings couldn't reclaim its monopoly on the hardware market in Australia.
Restructure heightens head office tensions
Masters staff were spooked by the mooted changes. Photo: Rebecca Hallas
Workers at Woolies headquarters showed Fairfax Media an internal document this week outlining a number of significant changes to the supermarket's management team as well as the downsizing of the Stores Transformation Team.
The restructure affects a number of senior personnel, including Woolworths head of petrol and convenience, Michael James, who has been appointed director of stores replacing John Eales.
Woolworths supermarket director Dave Chambers is returning to New Zealand and his former role as head of supermarkets will be scrapped.
Woolworths would not make any comment on the internal communication with staff but sources close to the operation suggest it's preparing the ground for a new chief from outside the business.
Staff were spooked by the mooted changes despite assurances it was not about cutting jobs but the timing, just two days after Woolies pulled the plug on Masters leaving 7000 working facing an uncertain future, cast it in a different light.
Masters nightmare finally ends
Investors and analysts are urging Woolworths chairman Gordon Cairns (left) to move quickly to appoint a new CEO to replace the outgoing Grant O'Brien (right). Photo: Christopher Pearce
Errington, an outspoken critic of Woolworths' costly pursuit of a stake in Australia's $45 billion hardware market, congratulated Cairns on abandoning Masters this week.
"This is the first time Woolies has made a decision in the best interests of shareholders for a long time," he says.
Errington also claims Woolworths had to exit Masters to clear the decks for the recruitment of the right chief for the business.
In his latest research note, Errington says a major distraction has been alleviated by the decision to quit hardware.
"A new CEO can be secured with certainty as to where the company is headed now and this should provide the company with the ability to attract the highest calibre candidate," Errington says.
The workers out at Bella Vista want a new leader. Many of these employees have worked for Woolies for decades and are baffled no one wants to lead Australia's biggest supermarket chain.
Marketing gaffes add to woes
The hat... without Tasmania. Photo: Courtesy of Seven News
Despite its big brand, Woolworths' reputation is battered. It's lost out in the sales battle with arch rival Coles for 25 consecutive quarters, or since the first quarter of fiscal 2010, and then there are the marketing misfires including this week's Australia Day caps featuring a map of the country without Tasmania.
Perhaps it was then not surprising when Cairns revealed this week a number of local candidates had turned down the opportunity to apply for the top job and the focus was now on a shortlist of overseas candidates.
"I couldn't persuade any of the local candidates I had in mind to come for an interview and I suspect the ones I had in mind were doing outstandingly well in their own organisations."
And he warned it could take longer than he initially indicated.
"I'm not going to apologise if we get to March and I'm saying 'Look give me another couple of months or so, because we are nearly there'," Cairns says.
One long-serving Woolies staffer said the ship had felt rudderless for a long time now and the absence of O'Brien, who was popular with staff, was eroding the already battered morale.
"It feels like we don't have a leader, it's really strange and a lot of people are wondering if Gordon Cairns is going to take over as chief executive," the worker said.
"The underlying culture is really good here, staff love this company and they would do anything for it but for a long time now we've felt like we're just a number."
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