By Patrick Hatch
Woolworths will open as many as four new so-called "dark stores" used to pack and ship online orders by the end of next year as Australia's largest supermarket prepares to defend itself from Amazon.
Chairman Gordon Cairns told the company's annual general meeting on Thursday that Woolworths was getting the supermarket chain into a position where it could compete with the e-commerce giant.
Amazon ran a "soft launch" trail of its local site on Thursday with a number of third-party sellers, and its full-service offering could be available as soon as Friday.
While the exact product range to be on offer is not clear, Amazon is becoming a significant player in the American grocery market through its Amazon Fresh service and investment in the up-market Whole Foods chain.
Woolworths is pushing back to defend its turf against Amazon.Credit: Louie Douvis
Woolworths chief executive Brad Banducci said the company would monitor Amazon's prices on products that Woolworths also sells, and take that into consideration when setting its own prices.
"We track pricing against all of our competitors… making sure our customers get a good deal every time they shop at Woolworths, so it'll be part of our price tracking no doubt," Mr Banducci said.
Mr Cairns said Woolworths recognised Amazon was a "formidable competitor", and was preparing for that challenge by improving its own online and delivery services.
That included opening up to four new "dark stores", which are closed to customers and are used solely to pack and ship online home deliveries.
Woolworths already has one dark store in Mascot, Sydney, and will be opening another in Sydney and one in Melbourne early next year.
"By the end of 2018 we'll have about five dedicated dark stores to be able to deliver to customers and improve our performance," Mr Cairns said.
He said Woolworths was improving its online fulfilment options, introducing "click and collect" to all its supermarkets. It was also trailing one-hour home delivery.
"We should give customers options as to how they interact with us – do they want to come into the stores, do they want delivery, do they want to pick up," Mr Cairns said.
"If we do that and we do that effectively then we are in a position to compete much more effectively with Amazon."
Woolworths has combined its online team and its 10 million strong loyalty business to create a platform that will let it better personalise offers to customers. The supermarket currently sells about 6.5 million items a week online.
'Cut their own throat'
Mr Cairns also warned suppliers that they risked "cutting their own throat" by selling their products to Amazon, because it could lead to other retailers dropping those products.
"If they go onto Amazon, then Amazon cuts the prices substantially," Mr Cairns said.
"What that forces other retailers to do is to reflect on whether they should be stocking the brand if they can't do it and make money.
"They can end up cutting their own throat. Before they step into the breach, they should perhaps consider what the long-term ramifications are."
Pokies promise
The company was grilled by shareholders over the more than 12,000 poker machines held through its hotels business, which generated 10 per cent of Woolworths' earnings from its continuing business.
Woolworths is the single largest owner of poker machines in Australia.
Mr Cairns said the company would consider gambling reform advocates' calls for $1 bet limits, $200 ATM daily withdrawals limits at venues, and cutting opening times from the 20 hours a day currently in many venues, and would compile data to assess those proposals.
"The first thing is to get the data, and the next logical step would be to say, if we trial this, does it actually reduce the incidence of problem gambling?" he said.
"If there's a compelling analysis coming out of that, then we've committed to coming back and reporting them."
Woolworths' food sales jumped 4.9 per cent in the first quarter, pulling ahead of rival Coles which saw 0.3 per cent growth in the same period.
The result was driven by a jump in transaction numbers and shoppers buying more on each visit, Woolworths said.
Woolworths has spent more than $1 billion cutting prices and improving service to regain competitiveness with Coles and fend off low-cost challenger Aldi.