The advice that guided Woolworths’ rebuild for ‘accidental CEO’ Brad Banducci

Brad Banducci leaves as one of the supermarket’s longest-serving bosses. Can his legacy survive the hits of the past six months?

Woolworths Group chief executive Brad Banducci will step down on Friday after eight and a half years as chief executive. Picture: NCA NewsWire

Brad Banducci has spent the past few weeks working the floors of the Woolies supermarkets. He intends to keep going right up until checkout time on Friday when he signs off as CEO.

Banducci’s 8½ years in the role mark one of the longest tenures for a Woolworths chief executive, outlasting the ever-domineering Roger Corbett.

Being back in the trenches closes the circle in many ways for Banducci. He was moved from liquor to repair the listing supermarkets business in 2015.

Even after eight years Banducci still describes himself as the “accidental CEO”, first jettisoned into the plum supermarkets role before being elevated a year later to CEO amid a management purge after the retailer’s disastrous Masters Hardware adventure.

He recalls agonising over whether to take the supermarkets role. Sales at Woolies were sagging badly and ground was being ceded to smaller rival Coles when a colleague gave him advice.

“There’s nothing wrong with Woolworths that can’t be fixed by Woolworths,” Banducci says of the advice. It’s a phrase that has always stuck with him through the top job.

“When you look back in the history of Woolworths, when it succeeds, it’s when it’s got the right culture. And so this was all about purpose and culture.”

The job of Woolies boss is brutal. It involves overseeing one of the nation’s most complicated logistics operations, running more than 1300 supermarkets here and in New Zealand; there’s the Big W discount chain, and more than 200,000 workers you are accountable for. It is constantly on the wrong end of suppliers and more recently customers.

Woolworths Group CEO Brad Banducci with incoming chief executive Amanda Bardwell.

Banducci saw through the extraordinary demands of the Covid pandemic and built out Woolies’ massive distribution centres. He also tackled Woolies’ biggest distraction by spinning out the pubs and clubs business, including pokies, into the $9bn Endeavour Group. He had to throw in the Dan Murphy’s liquor business to sweeten the deal. For years pubs and pokies sat uneasy with a supermarket that built its image around serving families.

In recent years there has been a flurry of smaller acquisitions into adjacencies including the buyout of Petstock and the move into food distribution play PFD. Woolies will pay $400m to buy out the remaining 35 per cent stake in the PFD distribution business it doesn’t already own.

But in the public’s eye it is the past six months that probably have been the toughest for Banducci. First there was the Australia Day backlash; then a walkout during a television interview; and it all culminated with a tense clash during a Senate hearing where the supermarkets boss was threatened with jail. Woolies’ overall reputation took a battering.

Since April’s parliamentary hearing Banducci has kept a very low profile, mostly to give new chief executive Amanda Bardwell, the current boss of Woolies’ digital operations, the clear air needed as she starts on Monday.

However, Banducci dismisses the hits as part of the territory of the job. “I’ve been through the highs and lows, and I wouldn’t change any of it, quite honestly, I’m privileged to be part of the team,” he says.

Much of the pressure can be traced back to supermarkets being in the political firing line since inflation hit and persistent claims of price gouging. (The supermarket has strongly rejected this.)

At the same time Woolies’ own sales were sagging at the start of the year as the retailer was arguably slower than rivals to drop prices across the board.

Banducci has sought to reset pricing as one of his last acts, rolling out a new everyday low price range last weekend. He says the time involved was about getting the balance right to work fairly with suppliers and shareholders.

“The truth is, if you go back to the end of Covid, which is when inflation really started to rise … and even today there are still are good reasons why suppliers are often asked for price increases.”

When Banducci stepped into the role in February 2016, Woolies was struggling following a string of shockingly bad strategic decisions. As he leaves it is the sector under fire with break-up threats and regulatory reviews, including a looming Australian Competition & Consumer Commission probe into grocery pricing.

Is Woolies a stronger business? It is certainly a more efficient player as it has grown revenues and earnings substantially under Banducci. The exit of Endeavour was needed so it could become a more focused player.

The shares have doubled under Banducci outpacing gains in the broader S&P/ASX 200. Supermarket profit margins, too, have widened as he built out significant new revenue streams in digital. There are more weekly visits to Woolies’ website than store visits; nearly 90 per cent of online orders are delivered within 24 hours and the gap is narrowing. There’s $8bn in online sales annually and in coming months this will overtake New Zealand to be Woolies’ second-biggest business.

Banducci has cleared the decks for Bardwell, taking a huge $1.5bn writedown on the long-underperforming New Zealand business, which also needs a reset.

After a poor start to the year, the dominant supermarkets business has regained momentum. On Wednesday Banducci signed off a better-than-expected underlying profit of $3.2bn with a 40c per share special dividend. “I feel the business is in a good place,” Banducci says. “We are going into our 100th year in December, and it’ll be a really good opportunity to reaffirm our purpose and our commitments of being customer-first team first in everything we do.”

Broadcast blues

Paris gave Olympic Games broadcaster Nine Entertainment a much-needed sugar hit after a tough year for television. The question is whether chief executive Mike Sneesby can hold on to his Olympics glow.

Australia’s winning efforts gave plenty of momentum for the Nine boss, who was on the ground in Paris, and bagged $160m in advertising and subscriptions across the two-week event. The cost of the exercise is estimated to be around $100m, leaving little room for error in the next Games.

Back home, his media business is grappling with three big issues, the biggest of which has to do with Nine’s flagship TV arm. The others are streamer Stan and Nine’s 60 per cent-owned Domain real estate listings business.

The structural hits to broadcasting have come later than publishing, but they are taking hold fast. All free-to-air operators, including Seven and Ten owner Paramount, are grappling with their moment of decline.

Streaming and digital channels have given audiences nearly unlimited options. All this is dragging viewers and, importantly, advertisers away from free-to-air TV. Tech companies such as Amazon and Apple are snapping up valuable sports rights, although in Australia free-to-air TV has some protections around sport.

Nine’s latest full-year accounts delivered by Sneesby revealed a collapse in the profit margins of its flagship TV business. At a little more than 18 per cent, Nine’s TV profit margins are at the lowest level since the advertising strike in the depths of the pandemic. In recent years the broadcaster is more used to delivering profit margins in the high 20s or even 30s.

In a twist, Nine’s publishing business, based around The Sydney Morning Herald and The Age, is outperforming TV with margins in the high 20s and in some parts pushing past the 30s. Newspapers, including this masthead, have been battling the digital disruption for nearly two decades and have long since reinvented their businesses around digital subscriptions and data for advertisers.

Reinvention is harder for TV, which is an exceptionally high-cost game and built around advertising rather than subscriptions.

Here Sneesby needs to shift TV’s advertising spend on to his on-demand platforms such as NineNow while keeping a lid on costs. This is happening, with digital making up 20 per cent of total TV revenue, though just not at the pace needed to keep ahead of the free-to-air pressures. Sneesby has pulled $50m out of the entire Nine business and has promised another $50m this coming year; however, any gains are being eroded by sports rights costs, technology and ongoing wage rises.

This means costs still need to be tackled while locking in content, particularly sport. The deeper cuts for television are coming.

Nine’s TV business earnings collapsed 32 per cent over the past year to just more than $208m. This prompted a 12 per cent drop in group earnings.

The answer to the decline of TV was meant to be streaming. And it has been high growth for a time. Sneesby ran Stan before becoming Nine chief and knows it well. Stan’s revenue growth has plateaued as price rises have been pushed through. Stan now has 2.3 million subscribers at the end of August, including a 100,000 boost through the Olympics.

Stan has been profitable but needs to keep spending up big as it battles it out in an ever multiplying Australian streaming market. And now the streaming world is facing its own disruption. There are global players such as Netflix, Disney and Amazon Prime investing in content. So, too, new players are circling or existing majors including Warner Bros Discovery are bundling content. Stan also is battling Foxtel’s Kayo and Binge.

Stan’s margins remain skinny at around 10 per cent; as it spends on content and sport this will need to continue as Sneesby gets a sense of where the field will settle.

Finally, the real estate listing business remains a laggard behind News Corp-backed REA Group. It’s delivering double-digit revenue and earnings growth, although its shares trade at a widening discount to the international-focused REA, the owner of realestate.com. This has been a source of deep frustration in the Nine boardroom. Sneesby says he is confident in Domain’s improving direction, although he concedes more work is needed to close the gap. He has ruled out a further selldown, saying the data generated and positioning of Domain works well with Nine’s TV and publishing assets.

Nine has the rights to the next two Olympics including Brisbane in 2032 and Sneesby is his confident the investment can deliver a break-even result. However by the time Brisbane opens, TV will need to be a much different business.

[e-mail]

Originally published as The advice that guided Woolworths’ rebuild for ‘accidental CEO’ Brad Banducci