How is Woolworths going to win back trust?

The new boss talks about getting the balance right with customers but deeper trust issues are already hurting the supermarket major.

Restoring customer trust is a top priority says new Woolworths chief executive Amanda Bardwell.

New Woolworths boss Amanda Bardwell faces one of the toughest challenges for any CEO: rebuilding trust.

This will be a long, slow process, but an important one. The erosion of trust is an invisible force that threatens to sap momentum and to turn customers away from the supermarket giant to rivals like Coles, Aldi or others.

Bardwell has acted quickly by increasing discounts across the shelves, though this has come at a high cost. Yes, lower prices have boosted sales, but they have also sliced into margins and prompted Woolworths to issue a rare start of the financial year profit warning. Woolies shares were down more than 5.6 per cent on Wednesday.

While Bardwell speaks of “getting the balance right” between customers and investors, it remains to be seen how long shareholders will tolerate the hit to profit, especially as Woolworths faces fast rising costs across labour and energy. Add into this a sagging performance of Big W and New Zealand and Woolworths will quickly lose its premium rating.

The trust issue goes far deeper than discounting. For the two major supermarkets chains, Woolworths and Coles, the end of September marked a tipping point for shoppers, as the competition regulator filed an explosive legal action alleging misleading discounting practices.

This was quickly followed by the ACCC’s first update and a critical one into its major probe into supermarket behaviour.

Woolworths’ voice of customer score is falling even as inflation is pulling back. Picture: Bloomberg

This scrutiny follows a year of allegations against supermarkets for gouging and anti-competitive practices. With inflation squeezing households, supermarkets have become an easy target for politicians seeking to divert attention from broader economic problems.

Former long-serving Woolies chief executive Brad Banducci this year become the poster child for supermarket anger. His fiery clash with senators at a parliamentary hearing earlier this year and a series of botched media interviews didn’t help.

However, it was the Federal Court action that proved most damaging. Even though these remain allegations, the ACCC claims that supermarkets were pushing through fake discounts across hundreds of items. Regardless of the outcome, these claims have sown doubt in consumers’ minds. Both Coles and Woolworths are expected to file their respective defence documents in coming weeks.

Woolworths uses a closely-monitored metric called the “voice of customer” as an indicator of customer advocacy and sales. Following the ACCC legal action, this figure fell to 46 points at the end of September. Although it had been rising through August and September, the Federal Court action marked a reversal point.

Currently, the score sits at its lowest level in a year — 12 months ago, a similar low coincided with the lingering effects of inflation. Before the Covid pandemic, the score peaked at 56, indicating that Woolworths had more satisfied customers prepared to spend more than not.

With inflation easing, and in some cases leading to food deflation, Woolworths’ voice of customer score should be improving. Clearly, this is not the case.

Bardwell says that winning back customer trust is her number one focus.

The new CEO points out Woolworths connects with millions of the same customers two to three times a week, whether in-store or online.

“It is an important opportunity we have every time that a customer connects with us to get it right for them,” she says.

Woolworths has long faced criticism for its complicated discounting program, which features both “red ticket” and “yellow ticket” discounts, while rival Coles has gained traction with its potent “Down, Down” discounting. Recently, Woolworths introduced an “Every Day, Low Price” strategy that is still finding its way.

Bardwell, who previously led Woolworths’ e-commerce efforts, adds that trust also hinges on the overall shopping experience, including the quality of fresh food and ease of getting in and out of stores, particularly at the checkout.

Customer satisfaction is increasingly tied to the digital experience, she says. More than 70 per cent of customers are using Woolworths’ online platforms before visiting a store. Another lever for improvement is the Woolworths Everyday Rewards loyalty program, which boasts more than 14 million members.

“Certainly there is a job in terms of rebuilding customer trust. What we’re focused on is this needs to be tangible and an experience that customers can actually see, feel and touch each time they’re in our stores”.

One bright spot for Woolworths is inflation is starting to cool. Closely-watched figures released by the ABS on Wednesday showed annual inflation slowed to 2.8 per cent in the September quarter from 3.8 per cent in the June quarter.

However Bardwell and Woolworths need to take charge of their trust gap rather than let the inflation cycle do the work.

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Originally published as How is Woolworths going to win back trust?