Woolies’ woes promise cheaper prices for customers

WOOLWORTHS is falling further behind Coles in the fight for your supermarket dollar, but its failures could result in big wins for you.

Expect some changes at your flagging local Woolies. Picture: Justin Lloyd

WOOLWORTHS’ sales continue to decline, but its misery means big wins for customers.

The supermarket giant is planning a major overhaul, promising unbeatable prices on groceries, appealing special offers and extra services tailored to shoppers’ needs.

Chief executive Brad Banducci yesterday announced the group’s restructuring as sales dropped 0.3 per cent in the March quarter, while Coles and Aldi gained ground.

Woolies has ploughed $400 million into reducing prices over the past nine months, but it hasn’t won us back yet. Now it’s investing another $150 million in improving price, customer service and loyalty.

Here’s how you’ll benefit.

Coles has been growing faster for years, and now it’s war. Picture: Bradley Cooper

CHEAP CHEAP CHEAPER

Crucially, prices will keep getting lower across the board, particularly in food, where the margins are greatest.

Woolworths’ food and liquor sales declined 0.9 per cent in the 13 weeks to April while Coles reported a 4.9 per cent jump in comparable sales for the third quarter.

Woolies will be making sure it beats competitors with the most attractive “loss leaders” — essential products, such as milk, bread and chicken, sold at a loss to get customers through the door. It will be working with suppliers to offer the best discounts on everyday products, such as spaghetti, as well as “exciting” weekly special offers.

Communication will also be a big focus. Coles’ “down down” campaign appears to have convinced customers it’s the cheapest, and Aldi trades on its cut-price overseas brands, so Woolworths will be making very sure you know where its top offers are.

Expect to be bombarded with adverts and enticing end-of-aisle displays, hopefully with a slightly less annoying catchphrase than the “cheap cheap” and cheesy appeals of old.

Woolworths has said it expects a small loss this financial year as it aggressively clears “unproductive” general merchandise stock, so look out for big discounts at Big W, too.

Look for fancier deli sections and special partnerships with local businesses.

HYPER LOCAL

Woolies wants to make each store as relevant as possible to the people who shop there, Retail Doctor Brian Walker told news.com.au.

“It’s trying to compete at a local community level rather than one size fits all,” he said. “A lot of consumers are moving away from one big shop a week to ‘basket shopping’. They visit two or three times a week to top up.”

This means supermarket giants can’t rely on just having a wide, cheap range. They also need to compete with small local stores on quality and range.

UK supermarkets offer a good example of how to do this, says Mr Walker. “Tesco adopted segmentation by local areas: gender, ethnicity, urban or metro and often smaller formats.”

Woolies will also look at what it can achieve with the physical space it has, seeing where it could work with suppliers or other businesses to offer something extra. That might be better deli sections, for example, or a butchery leased out to a local Harris Farm, suggests Mr Walker.

At the moment, it’s not always easy to get served or find help at Woolworths, so the retailer is investing in staff and training to make sure the customer service is on point.

Could supermarket shopping actually become fun?

Big W will be trying to emulate Kmart’s success by focusing on a few key areas. Picture: Ian Svegovic

BIG W’S BIG MAKEOVER

Woolies’ worst headaches have been outside its supermarkets and it is determined not to waste another second on unprofitable parts of the business.

The process of selling off loss-making hardware chain Masters is well under way, and it’s now turning its attention to Big W, which is down 4.5 per cent on last year’s quarter.

“Kmart’s turnaround showed that what a discount department store can offer is about value,” said Mr Walker. “It went from doing a little bit of everything to being very strong on pricing and volume.”

Big W has been hit by both our cultural move to smaller and more frequent shops, and by competitors such as Aldi offering seasonal special deals on big-ticket items.

We can expect to see Big W focusing on strength in key categories, as Kmart has with apparel.

With Aldi making big indents in the Australian market and other retailers eyeing an invasion, customers are reaping the rewards of intensifying competition. Picture: Dave Hunt

GOLDEN AGE OF SHOPPING

Until recently, Australian supermarkets were very comfortable indeed, with some of the highest profit margins in the world. But the landscape is changing, with Aldi arriving, Coles sharpening its act and online and local retailers playing a small part, too.

And there could be more pain to come, with German discount supermarket Lidl also reportedly laying the groundwork for an Aussie invasion.

“What’s really driving consumers is more competition than ever,” said Mr Walker. “Woolworths’ margins used to be between six and eight per cent, while global margins were three per cent. It’s coming in line with the global market.”

Woolworths has had a bad run. It “drank its own Kool-Aid” with Masters, says Mr Walker, and the decline in the face of growing competition has shareholders unhappy.

But it’s not over yet. Mr Banducci has promised Woolworths will be back in business before too long.

“Getting our customers to put us first is our priority and good progress has been made on delivering better prices and improved service to our customers,” he said. “We are also embedding a customer and store team culture across our group.

“It will be a three to five year journey to rebuild Woolworths supermarkets, but we are confident we are on the right track.”

Meanwhile, customers can expect a better range of products, better prices and better services, with Woolies’ big competitors ramping up their offerings in response as it sets the bar higher.

Time to stock up on the freezer meals.