Woolworths’ plan to take on Coles, Aldi

MAY 06, 2015
BUSINESS SPECTATOR
Woolworths is aiming to “neutralise” the impact of its chief rivals Coles and Aldi on its grocery sales, outlining a new pricing and value strategy after falling well short of expectations for its third-quarter sales.
In the 13 weeks to April 5, Woolworths (WOW) delivered total sales of $14.956 billion, which represented a 1.6 per cent decrease on the previous corresponding period, or a 2.1 per cent decline adjusted for Easter.
Woolworths said cost reductions also formed an important part of the strategy. The company’s cost reduction drive is expected to deliver more than $500m in savings across fiscal 2015 and fiscal 2016.
Around 400 support roles have already been cut and Woolworths said it expects to cut a similar number moving forward.
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Woolworths flagged weakness in its food and liquor sales at its half-year results, saying sales in December and January has been disappointing.
Today, chief executive Grant O’Brien said April was also more subdued than expected, despite some signs of improvement in February and March.
Admitting to investors today that “we still have much to do”, Mr O’Brien said sales at its flagship supermarkets operation had slowed in December and January, showed some improvement in March but sales were once again subdued in April.
He said Woolworths would “turbo charge’’ its new “lean retail” model by investing more than $500 million into lower prices, better service and more attractive offers.
Mr O’Brien said Woolworths would implement a new ‘lead retail model’ that would invest efficiency savings into all aspects of the supermarket customer offer.
“What is clear is that while lower prices are essential, the true battleground is the overall customer experience. So we will not be beaten on price, and we will provide better convenience, superior freshness and a more appealing range, and a focus on innovation,” Mr O’Brien said.
Woolworths Food Group — the new streamlined division encompassing its Australian and New Zealand grocery operations — managing director Brad Banducci said moving forward the company was placing the customer at the start of everything it does.
“This strategy will result in lower prices, more compelling offers, and greater innovation,” he said.
“What is clear is that while lower prices are essential, the true battleground is the overall customer experience.”
The Woolies plan includes a detailed strategy for improving Own Brands.
“Own Brands will play a key role in competing with limited range discounters,” the company said.
“Woolworths will create higher quality and better priced Own Brands to close range gaps where no branded alternative exists.”
The group said the new strategy will rebalance capital expenditure between new stores and existing store refurbishments, with plans for more than 80 stores to be refurbished each year into the foreseeable future.
This is well above the 23 stores refurbished in fiscal 2014 and the 61 refurbished in fiscal 2015.
Woolworths has also established a new division called Woolworths FoodCo, which will have responsibility for developing new product categories, improving fresh meat supply and processing facilities, and developing strategic sourcing relationships with Woolworths’ primary industry partners.
Turning to service offers, Mr O’Brien said around 250 new click and collect locations will be added over the next two years taking total click and collect network to around 1000 stores.