Woolworths blames plastic bag ban, Coles Little Shop for poor first-quarter sales

WOOLWORTHS says its sales have been hurt by “customers adjusting” to its ban — but Coles is to blame as well.

WOOLWORTHS has blamed poor sales in the first seven weeks of the financial year on “customers adjusting” to the plastic bag ban and Coles’ Little Shop miniature promotion.

Announcing its full-year results on Monday, the supermarket said same-store sales growth in the first quarter of the 2019 financial year was tracking at 1.3 per cent, down from 3.1 per cent in the last quarter of 2018.

“Sales have been impacted by customers adjusting to the phasing-out of single-use plastic bags, a competitor continuity program (Little Shop), meat and fruit and vegetable deflation, and the cycling of our successful Earn and Learn program in the prior year,” Woolworths group chief executive Brad Banducci said in a statement.

In response to bans in some states and territories, Woolworths and Coles chose to remove single-use plastic bags from their entire store networks from July 1, leading to customer complaints.

“We expect sales momentum to improve over the course of the half (year),” Mr Banducci said. “Our customer satisfaction metrics are broadly back to levels prior to the removal of single-use plastic bags, including Time in Queue.”

Speaking to analysts, Mr Banducci said the plastic bag ban had resulted in customers buying fewer items per shop, while the Coles Little Shop had reduced the overall number of visits “particularly with grandparents buying plastic toys for their kids”.

He admitted the supermarket had been caught off guard by the reaction to the plastic bag ban and would have done things differently “a second time around”, but “wouldn’t have changed our decision”.

Mr Banducci said Woolworths had expected a drop in basket size for larger shops but was “surprised” at the drop in items for smaller shops.

“The impact and the time for customers to get used (to the ban) has been greater than any of us had thought,” he said. “It has been a more painful adjustment than we thought. We know from our experience in pilot stores (it takes) eight to 10 weeks for people to adjust, so we’re still in the early stage.”

He reiterated that the bag ban was “never going to be a profit driver” because the slowdown at the checkout would eat away at “any incremental dollar you made for not giving out a free bag”.

“It was always going to be based on phasing out bags to make Australia a better place,” he said. “It was an important factor in brand positioning and doing the right thing, and pending legislation.”

He said Coles Little Shop was a “successful program and it’s having traction”. “Were the numbers greater than we expected? Probably a little bit,” he said.

Mr Banducci said whether Coles saw a sustained uplift after the six-week promotion ended depended on “how well we execute against our store experience”.

“That’s our focus, so when they come back in store they realise why they shop at Woolworths,” he said. “Some people might have felt polarised by it (the plastic toys). Only time will tell.”

Asked by analysts whether Woolworths had been “asleep at the wheel” and whether he was worried about the lead-up to Christmas, Mr Banducci said he worried “about it every day”.

“I get up at 5:30, look at the numbers and worry,” he said. “Plenty more grey hairs since I took this job.”

He said while lower fruit, vegetable and meat prices had been “great for item growth, customer experience and healthy eating, hopefully we see” prices tick back upwards in the short term.

Woolworths increased its full-year net profit by 12.5 per cent to $1.72 billion, with total sales up 3.4 per cent to $56.7 billion.

The supermarket giant said its Australian food division had delivered the strongest sales growth “in a number of years” with same-store sales up 4.3 per cent in the 52 weeks to June 24.

That’s despite sales growth slowing in the last six months of the year, coming off strong growth in the prior corresponding period, high levels of fruit and vegetable price deflation and a “decline in infant formula sales”.

“Our focus on customers putting us first remains at the core of what we do,” Mr Banducci said in his statement.

“All businesses saw an increase in customer satisfaction and traffic (transactions) during the year. Having fixed the basics, our focus is shifting to being ‘consistently good’ at the fundamentals and creating a meaningful shopping differentiation in the eyes of our customers.”

Struggling department store chain Big W posted a loss of $110 million, despite eking out positive same-store sales growth of 0.9 per cent. Endeavour Drinks profit was up 2.8 per cent to $516 million, while the hotel and pokies division reported an 11.1 per cent increase in profit to $259 million.

The New Zealand supermarkets posted a 10.4 per cent decline in profit to $262 million, while earnings from Woolworths’ discontinued home improvement and petrol arms came in at $195 million.

Woolworths will pay a final, fully franked dividend of 50 cents per share, unchanged from a year earlier, taking the ordinary dividend for the year to 93 cents per share, up 11 per cent. It will also pay a fully franked special dividend of 10 cents.

Last week, Coles reported same-store sales growth of just 1.1 per cent for the full year, but said momentum in the first quarter of 2019 had improved, “driven by a successful Little Shop campaign, other promotional initiatives implemented during the quarter, and improved store execution”.

Woolworths holds about 37 per cent of Australia’s $102.3 billion supermarket sector, with Coles on 30 per cent, Aldi on 9 per cent and smaller players like IGA and Costco making up the balance, according to market research firm IBISWorld.

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