Woolies in for a fight to dominate new era
Woolworths boss Grant O’Brien is setting about the business of bashing the giant supermarket, liquor, petrol and merchandise business into shape to better compete against a changing retail landscape.
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Part of that right-sizing of the behemoth Woolworths empire is shifting costs while focusing on improved promotions and discounts on certain parts of the business to retain customers and win over new shoppers.
This is key with Woolworths facing competition across the country, and across platforms, like never before.
While some in the press and Canberra might attack Woolworths and Coles for being a supermarket duopoly, recent results from both companies and the performance of newer players shows Australians are willing and eager to experiment with new retailers here and overseas via the web, and new supermarket entrants such as Aldi and to a smaller extent Costco.
It’s a different landscape to what other Woolworths bosses have faced over the decades. O’Brien faces a resurgent Coles which for much of the last two decades was asleep at the wheel and an easy competitor to pull the rug over, both by competitors such as Woolworths and suppliers.
He also faces German discount retailer Aldi with its popular no-frills approach and limited range of private label goods. Aldi has put the foot on the growth accelerator in Australia and will soon open its 300th store on the eastern seaboard.
Woolworths also faces junior internet players snapping at its heels. Although that horde of web retailers remain small, they can cause havoc with bigger retailer’s claim to offer the cheapest prices in town and are slowly but surely sapping Australian bricks and mortar retailers of sales and patronage.
This was evident today, when Woolworths unveiled a solid but slightly disappointing set of quarterly retail sales figures for the December quarter. First half sales for the company rose 4.8 per cent to $30 billion.
Its flagship Australian supermarket division saw first half sales rise 4.7 per cent to $20.488 billion. Sales for the second quarter were $10.3 billion, an increase of 4.8 per cent while comparable sales for the quarter were up 2.5 per cent - analysts were hoping of a growth number closer to 3 per cent.
O’Brien claims the hard work put in since he took over from Michael Luscombe is starting to show results, with his team focusing on the core fresh food division at Woolworths while its liquor division Dan Murphy’s continues to triumph.
The quarterly sales growth is still dwarfed by its arch rival Coles which on Wednesday reported 3.9 per cent comparable sales growth for the December quarter.
But the question for investors remains, can Woolworths return to its glory days when it was clobbering Coles?
O’Brien won’t have it easy. Price deflation, intense competition, worries about the global economy and now an eight month election campaign that will drain the confidence of shoppers.
He is also facing the ramifications of a decision to walk away from some costly promotions at Big W which saw the general merchandise group report a 1.4 per cent fall in December quarter sales. Its hardware wholesaler Danks also witnessed a setback in sales as its store network and product offering is reviewed and realigned to meet the needs of Woolworths’ burgeoning hardware retailer Masters.
Woolworths has successfully embraced the internet, reporting plus-50 per cent growth in food orders via the web. But the company’s strength remains in its massive network of bricks and mortar stores, and its these that through properly focused promotions, discounts and refurbishments that will deliver to Woolworths and investors the real earnings punch that the market is looking for and which Woolworths has a history of delivering year after year.