How Woolies will get its mojo back

WOOLWORTHS is pinning its hopes on one new strategy as it fights to win back more money from your weekly shop.

MELBOURNE, AUSTRALIA - MAY 25: A shopper walks out of Woolworths supermarket on May 25, 2015 in Melbourne, Australia. In a bid to regain its title as Australia's distinguished retailer, Woolworths are set to cut costs and reduce prices on thousands of grocery products to compete with rival supermarket giants Coles and Aldi. (Photo by Quinn Rooney/Getty Images)

WOOLWORTHS has revealed its big play to turn around its struggling business: Its supermarkets are taking on the takeaways.

The supermarket giant plans to expand its range of gourmet ready meals, taking inspiration from the success of UK retailers such as Marks and Spencer, Tesco, Sainsburys, Waitrose and Asda.

Woolworths estimates the prepared meals sector, excluding restaurants and cafes, is worth $22 billion a year.

“We’ll be competing not just with [other] supermarkets but with quick-service restaurants,” chairman Gordon Cairns said.

Woolies is already making headway with its Jamie Oliver and Michelle Bridges ranges, and earlier this year partnered with food processing company Beak and Johnston to set up a dedicated “City Kitchen” in western Sydney employing more than 250 people to produce ready-to-cook and ready-to-heat meals.

“There is significant ‘white space’ for us in food if we can better serve more of our customers’ food shopping missions,” Woolies executives Brad Banducci and Dave Chambers told investors in May.

In the UK, ready meals have been an institution since all the way back in 1979, when Marks and Spencer launched its first ready-made chicken kiev. As the BBC reported, what made it revolutionary was it was chilled rather than frozen.

As of 2012, the chilled ready meal market made up 57 per cent of the UK’s prepared meals market, valued at $5.44 billion (£2.6 billion), according to Mintel.

According to market research firm IBISWorld, the Australian prepared meals market, dominated by McCain, Simplot and Matchlow, brings in about $900 million in revenue annually. IBISWorld analyst Brooke Tonkin says the growing private label push by Coles and Woolworths has hurt the traditional branded players.

“Supermarkets typically negotiate for the manufacture and packaging of private-label products with contract manufacturers,” she said.

“While Coles and Woolworths do not manufacture themselves, private labels have been a continual headache for industry operators that produce branded prepared meals. This is because private labels are comparatively cheaper and given more favourable shelf space in supermarkets.”

Woolworths says it gained about 30 stores last compared with a much more conservative Coles, which only gained 14 new stores last year. Although Coles dabbles in ready meals, and has some smaller-format locations such as Melbourne Central railway station, it hasn’t made any sweeping strategy statement.

Critics might point out that delivering gourmet “meal solutions” to time-poor urban professionals was a big part of the Thomas Dux offering, which Woolworths appears to now be backing away from by letting the leases run out.

Retail analyst Geoff Dart, of DGC Advisory, said retailers often became stuck in a particular format when they should be modifying them to accommodate different demographics and buying behaviours.

He agreed that convenience was a big opportunity.

“If you look at 7-Eleven, consumers don’t have a lot of choice in convenience shopping. Coles did a good job with Coles Express by including a lot of popular high-impulse lines like boxes of chocolates or flowers,” he said.

With singles and couples without children expected to account for 50 per cent of all households by 2035, the demand for convenience eating could push Woolworths to 3-5 per cent growth if played right, he argued.

“[Ready-to-cook] prepared meals where it’s ‘do it with me’, that is a big opportunity,” he said. “We’ve got an ageing population, people are becoming more time-poor, convenience is becoming a much more important factor in their lives.

“Take-home meals have worked well in the UK, but it’s about how appealing and affordable you can make that offer, particularly while keeping it fresh.”

Mr Dart said Woolworths would likely need outside expertise to make it work. “Selling pre-prepared meals is quite different to stocking shelves; it’s quite a different consumer dynamic,” he said.

“Whether it’s South American or Asian, you have to keep on trend with tastes and buying behaviour. It’s hard to formularise because it’s a changing feast, whereas most supermarket categories don’t change very much.”

Meanwhile, a Coles spokesperson said: “We know customers are sometimes short on time but still want to make a healthy and tasty meal at home. So, Coles has had a range of ready-to-cook meal solutions for several years, including pre-cut vegetables and mixed salads, along with a range of prepared and marinated meats.”

An example of their range is the ready-to-cook or reheat options they started selling last year under the name “Coles Made Easy”.

Mr Cairns apologised and pleaded with shareholders for patience last week as the troubled supermarket attempts to return to its “rightful position as a great company”.

He said the company’s 2015 results, which saw full-year profit fall 12.5 per cent to $2.15 billion, were “frankly unacceptable”.

But he said there was no “quick fix”, and that the turnaround would take at least three years. Asked by one shareholder where he saw “sustainable growth” coming from in the future, Mr Cairns said format expansion would be key.

“[Once the turnaround is complete] we think about 3-4 per cent top-line growth is realistic, [given] population growth and inflation,” Mr Cairns said, saying Australia was unique in that there was “around 15 per cent” contestable share in new formats.

To that end, Woolworths will be opening more of its 200-400sq m convenience-sized locations, like the one located near Central Station in Sydney’s Surry Hills, to take on 7-Eleven and Coles Express.

More important to its strategy going forward will be its roughly 1000sq m mid-sized stores, which it runs in a number of locations including Gladesville and Chatswood in NSW and Ascot in Queensland.

Formerly known as Woolworths Metro, Mr Cairns has taken to referring to the mid-sized stores as “High Street” locations, and they will be a key driver of the supermarket’s push into UK-style gourmet ready meals.

[e-mail]