Global Food Forum: Woolworths has ‘more work to do’ on prices

DANIEL PALMER and ELI GREENBLAT
March 28, 2017
The Australian 

Woolworths chief executive Brad Banducci says the retail giant is not done with its investment on price as it looks to continue to close the gap on chief rival Coles after years of underperformance.

The retail chief also lamented the recent rises in energy prices, noting the group (WOW) was trying to “outrun a bear” with its energy efficiency push.

Speaking at The Australian and Visy’s 5th annual Global Food Forum in Melbourne this morning, Mr Banducci said a $1 billion investment in prices would not be the end as it eyes an improved value offering to customers.

“We want customer trust on price,” he said.

“We are a year into our job of doing that but have more work to do.”

He also defended the group against claims the cost cutting strategy has hurt its suppliers more than its own margins.

“I don’t think that’s necessarily true. We’ve invested over a $1bn in prices what we’ve been trying to address is the issue customers need products that are affordable,” he said.

“You are not seeing a profit shift from one side of the supply chain to the other.”

More from the Global Food Forum

The head of the supermarket chain also weighed into the issue of Amazon’s likely touchdown in Australia, noting the e-retail behemoth was not a new competitor given it has had been used by Australian customers for over a decade.

“It has been here for many years and has been a robust competitor,” he said.

“(However it’s official arrival) does focus the mind wonderfully on another megatrend — extreme convenience.”

Among other megatrends beyond trust on price and extreme convenience, the retailer is also eyeing personalisation, health foods and local ranging.

Mr Banducci noted in particular that health foods and “super foods” were looming as an important growth platform going forward as his shoppers wanted to shop and eat healthier.

This was already showing in sales trends at Woolworths where the berries category was now the supermarkets biggest, with it selling 25 per cent more volume than the next biggest category, bananas. The third largest is avocados.

Mr Banducci said a recent decision to lift the proportion of health foods at one store by 35 per cent had translated into a 40 per cent lift in sales at that particular supermarket.

However, he said sales of health and organic foods were still being hamstrung by high prices with the cost of organic foods roughly double the price of the standard item.

“We need to bring those prices down,” Mr Banducci said.

“Food affordability is a central issue we all need to confront.”

He said 60 per cent of shoppers wanted to buy more healthy food but were unable to do so because of price.

Turning to the booming food export market into China, Mr Banducci said where once it was Bellamy’s infant milk formula being stripped from his shelves and mailed to China, it was now A2 Milk.

However, this was causing problems as he couldn’t then adequately supply his core customers.

“It breaks my heart,” Mr Banducci said.

Meanwhile, the retail chief also expressed unease about the run-up in energy prices as the debate on keeping inflation in check rages.

“It is a very material issue for us and for all our partners up our supply chain,” he said.

“We manage what we can manage (with) energy efficient (products). But given the cost increases coming through, we are trying to outrun a bear at the moment.”

The problem of surging energy prices is tipped to present a challenge to its focus on price for customers, with Mr Banducci conceding the group would likely have to pass on some of the extra costs to its customers.