Outgoing CEO Brad Banducci admits Woolworths ‘out-traded’ by Coles

Outgoing Woolworths CEO Brad Banducci has made the rare admission that arch rival Coles had ‘out-traded’ the supermarket giant during the March quarter.

Woolworths’ outgoing boss Brad Banducci: ‘We were out-traded in the quarter, let me just own that.’

Outgoing Woolworths CEO Brad Banducci has made the rare admission that arch rival Coles had “out-traded” the supermarket giant during the March quarter.

Woolworths’ sales growth was dented by a potent mix of poorly received promotions, supply disruptions and a skittish consumer focused on sticking to a budget.

The underwhelming quarterly sales widened the performance gap between the retail giant and rival Coles and missed analyst expectations.

Mr Banducci, who will hand over the reins to the nation’s largest retailer in September to Amanda Bardwell, is leaving the supermarket giant with a huge new challenge on its plate – a resurgent competitor in Coles and a fragile shopper desperate to save money on their grocery shop.

Typically when presenting profit or sales results, the twin supermarket giants never mention their rivals, but Mr Banducci was forthright in his response to needling from analysts about what went wrong for Woolworths in the third quarter.

“We were out-traded in the quarter, let me just own that,” Mr Banducci told analysts on Thursday after Woolworths posted third-quarter sales growth for its flagship Australian supermarkets of 1.5 per cent, against Coles’s 5.1 per cent, or 4.2 per cent growth for Coles on a same-store sales basis. Same-store sales for Woolworths’ Australian supermarkets of 1.1 per cent was against market expectations of 2.1 per cent growth.

“We realise we have got a lot of work to do on the shape of the value we deliver to customers,” Mr Banducci said, as he released third-quarter sales results that showed total group sales up 2.8 per cent at $16.8bn.

The sales performance follows a horror month for Mr Banducci in which he was threatened with up to six months jail from Senate ­supermarkets inquiry chairman Nick McKim.

Mr Banducci was particularly squeezed on the supermarket’s lacklustre Australian food and grocery sales by Bank of America Merrill Lynch analyst David Errington, who heavily criticised Woolworths’ sales performance over a two-year period, saying that it was falling behind Coles.

“End of the day, on a two-year stack, you have been out-traded by Coles by nearly 3 per cent. That’s telling me there is an execution problem, you’ve been out-traded,” Mr Errington told Mr Banducci in an analyst briefing.

“That’s an execution problem and to me the most important issue facing the stock today.”

Shares in Woolworths fell almost 5 per cent on the sales results, and later closed down $1.32, or 4.15 per cent, at an almost four-year low of $30.50. The shares are down 18 per cent since the start of the year.

Cost of living pressures and how to make ends meet are top of mind for shoppers, says Woolworths.

Coles shares fell 1.89 per cent to $16.09 and are off just 0.12 per cent since the start of January.

“While expectations were low, it was a disappointing result, with Coles clearly out-trading Woolworths on shorter-term initiatives,” Jarden analyst Ben Gilbert said on Thursday. “We would expect consensus to fall but ultimately see Woolworths as a strong business that has invested for the long term – the question is when will we see this return?”

There was plenty of blame to go around, with Mr Banducci pointing out issues in Woolworths’ business that drained sales, such as not having an in-store promotion to rival a successful one run by Coles in the quarter, supply disruptions, to headwinds in the economy that was draining shoppers of their spending power.

Mr Banducci said customers remained heavily focused on cost-of-living pressures, with these stresses heavily influencing purchasing decisions at the supermarket.

He said the pressures would continue to play out for at least the next 12 months.

“When we listen to what our customers are telling us, all customer segments in Australian food (supermarkets) are reporting an increase in concerns around ‘making ends meet’, despite the recent moderation in inflation,” Mr Banducci said.

He said the downturn in consumer confidence, driven by cost-of-living anxiety, had accelerated after Christmas. Cost-of-living pressure was now the biggest issue for consumers and one that was dominating their thoughts, as opposed to housing or crime.

“Consumer sentiment in Australia and New Zealand has been weak for some time,” Mr Banducci said. “However, since Christmas we have seen a noticeable change in consumer behaviour as customers have adjusted their budgets and spending following the holiday period, which is consistent with Ipsos data which showed that the gap between cost-of-living concerns and other concerns continues to widen.”

Mr Banducci said shoppers were becoming much more “promotionally sensitive”. But he said that, pleasingly, at the end of the March quarter there had been the much-anticipated shift to cooking at home, led by people cooking Mexican, as households dined out less to save money.

“This is something we have waited for quite a while,” he said.

“That has started to move. The highest growth through that right now is material growth in Mexican (food) actually.”

In a somewhat surprising result, Woolworths said it experienced food and grocery deflation for the quarter, with food prices down 0.2 per cent in the third quarter, against a 5.8 per cent rise for the same time last year.

It is the first time that Woolworths has experienced food deflation – or falling prices – since the third quarter of 2022.

On Tuesday, Coles reported its third-quarter results, which showed inflation continuing to moderate but still in growth.

Coles said total supermarkets price inflation had eased to 2.2 per cent in the third quarter, against 3 per cent recorded in the second quarter.

Among its key businesses, Woolworths’ Australian supermarket sales rose 1.5 per cent to $12.58bn, its business-to-business food business recorded sales increasing 3.2 per cent to $1.098bn, New Zealand supermarket sales rose 1.4 per cent to $1.88bn, and Big W sales fell 4.1 per cent to $1bn.

Originally published as Outgoing CEO Brad Banducci admits Woolworths ‘out-traded’ by Coles