Woolworths morale ‘at all-time low’

MORALE at Woolworths is at an “all-time low” due to lost sales opportunities and disengagement, analysts have warned.

Woolworths could get desperate. Picture: Ian Waldie/Bloomberg

MORALE of Woolworths staff and suppliers is at an “all-time low” due to lost sales opportunities and disengagement, analysts have warned.

At the same time, the nation’s largest supermarket is at risk of making “irrational” further price cuts in what will ultimately lead to a full blown supermarket price war.

A report by UBS analysts says the longer it takes Woolworths to turn around, the greater the risk there is of a price war with archrival Coles, which would benefit shoppers but hit profit margins.

The UBS survey of 58 supermarket suppliers found Woolworths’ investments in price and service have not translated into noticeable improvements.

“The current value message is not winning back shoppers and in-store execution remains poor and is deteriorating,” the report said.

“This suggests increased risk of Woolworths making ‘irrational’ further investments to drive momentum, or Coles stepping up investment to maintain its like-for-like lead in a slowing market, is growing.”

It said the pace of Woolworths’ turnaround was slower than expected and the probability of a price war had increased to 35 per cent, up from its previous forecast of 30 per cent.

“The risk of a price war continues to grow with suppliers forecasting shelf-price deflation for the next 12 months,” it said.

“However, there are signs Woolworths is bottoming (fresh, marketing), which could trigger increased investment from Coles to ensure top-line momentum is maintained in a slowing market.”

Price cuts across a range of items helped lift Coles’ comparable food and liquor sales by 4.9 per cent during the third quarter of the current financial year, while rival Woolworths’ food and liquor sales declined 0.9 per cent.

UBS analysts said they believe Coles’ management will be seriously assessing the need to invest more earnings to maintain sales momentum.

The 20th supplier survey, which asks suppliers to rate the two supermarkets across 26 measures, puts Woolworths’ morale score — part of its overall culture rating — at its lowest level since the series began in 2007.

“We have always believed, and continue to believe, that culture is the hardest and most important score to lift,” the report said.

Woolworths’ overall culture score dipped 0.2 points to 5.1 in the latest survey, widening the gap with Coles, which boosted its score 0.1 points to 6.7.

UBS believes the continued deterioration in culture can be attributed to the “lack of execution in the strategy and poor follow-through of the plan below senior management”.

“Moreover, from our supplier discussions, Woolworths’ mid-management remain too focused on category margin, as opposed to category growth, which is reflected in the lower ‘working with suppliers’ score.”

Along with morale, all other subcategories in Woolworths’ culture score declined with the exception of senior management calibre. Discipline, decision-making, proactive and working with suppliers all declined.

“Culture will be a key signal of a successful Woolworths turnaround,” the report said.

“In our view, ‘senior management calibre’ and ‘morale/enthusiasm’ are the two most important subcategories in the survey: a good management team plans for the long-term, and staff with high morale are more likely to execute on those plans.”

Last year, news.com.au revealed a leaked internal document showing how Woolworths’ relationships with its suppliers were at their lowest level ever.

It comes as Coles this week launched a food truck campaign to promote its new Coles Brand Ultimate pizza range. The month-long sampling tour will cross Victoria, New South Wales and Queensland.

The sampling program, which will roll out in supermarkets after the food truck tour, follows Coles’ announcement of a simplified brand architecture under a single ‘Red Ribbon’ label.

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