Woolies sees 8% rise in profits
BusinessDay's Eli Greenblat reports on Woolworths' profit announcement and says the company boss hopes for even better numbers once the election is over.PT0M0S 620 349
Woolworths has set itself a target of growing profit by up to 7 per cent this year - even more than the 6.1 per cent profit growth this year.
To achieve this it needs to see consumer confidence come back and to take some more market share from its smaller rivals.
Woolworths reduced the cost of a basket of goods by almost 3 per cent in 2013. Photo: Melissa Adams
Sure it can cut costs and become more productive, but getting more customers into the stores will grow the revenue line.
It's a touchy point for the company that is keen to boast to investors that a record number of customers went through Woolworths group checkouts last year.
There is a major campaign being waged by smaller independent grocers and by Woolworths suppliers both of which are warning that the two big supermarket operators have an unhealthy level of market power.
Small grocery competitors are using advertisements to push their case. It hasn’t had much political traction yet apart from Malcolm Turnbull re-iterating that the big guys’ market share is a concern.
When one takes into account the growth of German uber-discount supermarket chain Aldi, the strength of Woolworths result and the expectation for continued growth is even more amazing.
Aldi is picking up plenty of market share - but apparently not from Woolworths or Coles. Woolworths had a record 28.4 million people per week visit its stores.
But it's hard for political parties to buy into a fight with the big supermarkets when, for example, Woolworths reduced the cost of a basket of goods by almost 3 per cent in 2013.
It could have done even more and has the capacity to ramp up discounting even more this year if it so chooses.
Who wants to electioneer on a policy of increasing grocery prices.
If there is movement against the supermarket giants we won’t see evidence until after the election.
The coalition will undertake its root and branch review of competition policy and Labor will place its oar into the ongoing and supposedly collaborative effect between suppliers and supermarkets to create a voluntary code of practice.
Woolworths boss Grant O’Brien says the parties are ‘'close’', which is curious because away from the cameras these two groups are a long way from consensus – and they are highly critical of each other.
Meanwhile, Woolworths (and many other companies) appear to be investing a lot of faith in the election providing a positive boost for consumer confidence. It is now seen (or sold) by many companies are the tipping point to get people back into the shops.
Before the election was called businesses were focused on falling interest rate as the potential saviour. But the now historically low interest rate environment hasn’t done much other than temp people back into the property market.
Woolworths is almost entirely a non-discretionary retailer - with far more stable sales that are less prone to movements in consumer confidence.
An Australia wide shopping spree would benefit some brands - mostly Masters and to a lesser extent Big W - but would be proportionately less helpful for the supermarkets.
O’Brien will be hoping that he can grow profit at the upper end of its guidance range as it did in 2013. Woolworths will have a some cost initiativies in its arsenal. It made some good inroads in costs and '‘shrinkage’' (which is the product that has to be thrown out) and plus some logistics improvements.
The 2014 result should also be helped if Woolworths’ fledgling home improvement business, Masters, starts to reduce its losses.
(In 2013 Woolworths received a much appreciated boost from its Hotels division thanks to the acquisition of additional pubs and some regulatory changes from the Victorian government.)
But the Woolworths engine room is still its Australian food and liquor business.