Back from the brink: Woolworths before its turnaround

A split board, a lack of investment, unmotivated staff and an ‘emasculated’ CEO. That was Woolworths in 2015, says chairman Gordon Cairns.

Gordon Cairns, right, with retailer “for the 21st century” and Woolworths CEO Brad Banducci, left. Picture: AAP

Woolworths chairman Gordon Cairns has admitted that in 2015 the supermarket giant was led by an “emasculated” chief executive and a fractured board, with its stores lacking in investment and in disrepair, suppliers mistreated, staff unmotivated and grocery prices too high.

Addressing the Australian Institute of Company Directors’ Australian Governance Summit on Monday, Mr Cairns also said the recent discovery by Woolworths it had underpaid its workers by $500 million triggered an investigation covering six years of wages that was so complex the accounts had to be sent to the CSIRO to decipher.

Turning to COVID-19 Mr Cairns said last-year’s panic shopping in supermarkets as the pandemic emerged showed the “best and worst” of its customers, as fights broke out in the aisles and some Woolworths staff were assaulted.

He said the cost to Woolworths so far of measures to customers, staff, provide extra security and maintain safe workplaces was $681 million, or around 2 per cent of sales.

Limping on stage at the AICD conference because of an old rugby injury, Mr Cairns reflected on the last five years for the supermarket giant.

He said Woolworths was plagued by a series of operational and managerial problems in 2015, when he became chairman.

This was led by the chief executive at the time, Grant O’Brien, who Woolworths had asked to leave but, when discovering it had no replacement, then asked him to stay longer.

“First of all we had a chief executive who had been asked to leave by the organisation, and then they discovered they didn’t have anyone to run the organisation so they asked him to stay - which put him in a dreadful position,” Mr Cairns told the AICD conference.

“I mean, the poor guy, he was totally emasculated and he behaved with an enormous amount of dignity, I have to say.”

An “enormous amount of dignity.” Former Woolworths CEO Grant O’Brien

At the time, Woolworths directors were split and the retailer had wasted billions of dollars on its ill-fated hardware chain Masters.

“The (Woolworths) board was somewhat fractured, which I think is obvious, we had made a number of serious and costly missteps with investing in Masters (hardware). We decided that we could get into the home improvement area so we built one store, it performed badly, so we repeated it 51 times.”

He said in 2015 Big W was also losing a lot of money and Woolworths had not properly invested in its supermarkets.

“What I mean by that is when I first went around some of our supermarkets we had towels underneath the fridges and the reason we had towels underneath the fridges is that was to catch the water that was coming from the fridges because they weren’t working.”

He said Woolworths had also stopped investing in service, had less staff in the stores and had increased the prices of products so they were uncompetitive.

“Our suppliers didn’t trust us because we figured the way to deal with suppliers was to treat them badly and in that way they gave you more money, I could never understand how that worked.”

He said the appointment of chief executive Brad Banducci in 2015 helped to begin to radically change the culture as the retailer worked on improving service, shutting down the failed Masters experiment, and bringing diversity into the boardroom.

Key was the type of retailer Mr Banducci was and what he would bring to the role.

He said Mr Banducci was a retailer “for the 21st century” who recognised the huge changes happening in the retail sector including technology and the shift to online.

“What did we go about doing? The first thing is, and I think this is one of the most important tasks that a board actually has, you have to find and appoint the right chief executive.

“And we were very fortunate that we had someone in the organisation who had all the hallmarks of being a great chief executive and I have to say that my intuition and sound judgment has been proved in spades, he has been and continues to be an outstanding CEO.

“An important criteria we were looking for was a chief executive who was a 21st century retailer, who understood that the future is actually in e-commerce and understood that not only was the future in e-commerce but the future was stores, supermarkets, not about selling product at a reasonable price. It was actually about giving people a great experience when they went into the stores.”

During the emergence of COVID-19 in 2020 Mr Cairns said Woolworths was able to push through changes in six months that normally would have taken two to three years to implement.

He said these initiatives included pop-up distribution centres that were completed in a week, that typically would have taken years.

Originally published as Back from the brink: Woolworths before its turnaround