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Woolies target a touchy point


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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.

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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.

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.

10 comments so far

  • Woolworths will only make bigger p[profits if it can gouge its suppliers and it customers. Under a Liberal Government, competition policy will recede as the big end of town is rewarded for its support of the Coalition. The Libs talk about small business but they don't really care.

    Date and time
    August 28, 2013, 2:42PM
    • This retail duopoly is bad for everyone and should never have been allowed to grow. Pokies, petrol on and on the tentacles grow unhealthy to suppliers and consumers. Grow, grow, grow the typical sinister mantra.

      Big Artie
      Date and time
      August 28, 2013, 3:37PM
      • Recently some products we buy regularly have moved up in price at Woolworths while staying the same in Coles. That made them more expensive at Woolworths. One product moved to the same price as charged by a small IGA.

        Sydney Northern Beaches
        Date and time
        August 28, 2013, 3:51PM
        • The bottom line is that shoppers will gladly bend over backwards to get screwed by the two largest food retailers, provided consumers are at least provided with state of the art facilities. Sometimes its just convenience, elitism & pure habit as to why people continue to shop at the same location, regardless of whether they can buy the same items elsewhere for a cheaper price. Here we pay 40% above anything you would pay in the US or most international supermarkets. They get criticized, have a temporary price reduction advertising blitz, and then in the not too distant future prices progressively return to their original level & beyond. Nothing much ever changes… The BEST thing that ever happened in this country was Aldi, otherwise we wouldn’t even be having this discussion & people would still be paying top dollars for 1/2/3 year old fruit & vegetables. Best Solution – complain, & the BEST result I’ve ever seen related to a chicken meal, where the complainant received free product every week for 12 months~!

          Date and time
          August 28, 2013, 5:21PM
          • Shop at ALDI its much more cheaper......

            Gymea Bay
            Date and time
            August 28, 2013, 6:07PM
            • its very easy to schedule "growth" in sales of 7%, as a former supplier to the big two, they demand and receive guaranteed "price" rises every April and October, usually of 3-4% each. This allows them to increase shelf prices and lays the blame on the supplier for increasing prices. Then any increase is screwed out of the supplier as additional advertising and promotions money, usually by threats of being deleted or replaced with a home brand. we have the most expensive supermarkets in the developed world, and the government continues to let the colesworth duopoly grow unfettered. its time to split these monsters up and get them back to 15-20% market share maximum. then we will see some real competition

              2 x 4% price rises guaranteed yearly
              time to kill the duopoly
              Date and time
              August 28, 2013, 6:23PM
              • I am at a loss to understand the constant criticism of Woolworths and Coles. They provide cheap products to a market that demands bargains. Having dealt with both companies, they only want to provide the cheapest product options they can, and the suppliers that give them this product, only have themselves to blame if they sell at a price that is less than profitable.
                Farmers and transport companies are under no legal obligation to provide these products and services, they do so because the big two can provide them with the volume they need to grow their businesses. If everybody goes to a local market, they will pay more, have less range to choose from, but they can sit comfortably in the knowledge they have struck a blow for the little fellow.
                The trouble is the little fellow is not paying anymore to the suppliers, they are just charging more for the same product. It is time for everybody took their heads from their collective arses and realised that this is just market economics. People like to pay less, but they don't like to be paid less, and that is the hole in the Katter, et al argument.
                It is time for everybody to shut up about duopolies, and concentrate on personal buying habits, if nobody sells to the big two, or delivers product to them, they will have nothing to sell. Convenience is a double edged sword, and so is capitalism, somebody has to lose for somebody to win, if you buy your milk and bread from a convenience store you will pay more, and nobody wants to pay more.

                Ed J
                Date and time
                August 28, 2013, 6:30PM
                • It would help if they could open the Newport NSW store - why so long to get this sorted?

                  Date and time
                  August 28, 2013, 6:40PM
                  • time to have the two big supermarket chains broken up ,

                    Bob Menzies
                    Date and time
                    August 28, 2013, 7:47PM
                    • Elizabeth does your shopping depend on which party is in government? No? I didn't think so. Why then writing that stuff that companies waiting on an certain outcome of the election. Do they think that on the 8th of September I have more money in my wallet then the day before?

                      Date and time
                      August 28, 2013, 8:44PM

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