Woolworths boss pays the price for its sagging reputation

Woolworths’ outgoing boss, Brad Banducci, must be ruing his board’s decision a few years back to include the company’s reputation as part of his long-term bonus.

He must also have a dartboard in his poolroom, with Peter Dutton, Anthony Albanese, and Greens Senator Nick McKim sharing the bullseye position. This Canberra trio has played a game of one-upmanship on supermarket bashing over the past six months and may make the Guinness World Records for the use of the term price gouging.

Woolworths CEO Brad Banducci pays for Woolworths’ reputation slump.Credit: Dion Georgopoulos

The three are vying for the gold medal if it was an Olympic sport.

The fact that Woolworths’ reputation has taken a hit this year won’t come as any surprise, but the quantification of the size of that fall is staggering. A leak in The Australian Financial Review reveals that in two years Woolworths has gone from the seventh most reputable brand to the 42nd.

And this is not just any old marketing spruiking company making that assessment; it is the firm Woolworths employs to measure its reputation, and produce a result that is fed into the broader remuneration scorecard. Reputation has a 20 per cent weighting, with the rest comprising total shareholder return and return on funds employed.

If Banducci scores zero, he stands to lose up to $1 million from his pay package.

Oh for the good old days when Woolworths executives were marked on sales per square metre.

The Woolworths annual report says that the board has some discretion over and above meeting key performance hurdles – a carve-out that it might use, for example, if the hurdles were met, but an executive did something untoward (such as pinching from the till or harassing staff).

But the Woolworths board is unlikely to stray from sticking to the set hurdles contained in Banducci’s long-term incentives.

Banducci will also feel the effects of diminishing scores on “Voice of Customer” – or customer satisfaction as it is more widely known.

Labor, the Coalition and the Greens have used the supermarkets as a political football during the fertile period of a cost of living crisis.

Customer satisfaction held up well until the second quarter of the 2024 financial year (from the start of October to the end of December 2023). But in the second quarter (the latest to be released), the number fell 16 per cent from 50 to 42 for Woolworths supermarkets and e-commerce.

Funnily enough, when the company raised the idea of including reputation in the long-term remuneration mix, plenty of shareholders thought it was a “soft” metric and were sceptical about whether this measure could be gamed.

In a sense, it has been. Labor, the Coalition and the Greens have used the supermarkets as a political football during the fertile period of a cost-of-living crisis.

They have also played on the plight of the small farmer/supplier and how the big supermarket giants use their power to toy with them.

Opposition Leader Peter Dutton has argued for forced divestiture of stores for anti-competitive behaviour.Credit: James Brickwood

After the Albanese government blew the starting whistle on this anti-supermarket sport, the Coalition has gone in harder, announcing its intention to “big stick” measures to enable forced divestiture of stores for anti-competitive behaviour.

The chorus of views from competition experts and economists that this measure won’t help reduce prices at the checkout has been drowned out by the shrill pitch from Canberra.

Politicians understand that finding and punishing a few high-profile supermarket perpetrators in a cost-of-living war pays political dividends – regardless of how extreme.

This is not to say that supermarkets are entirely blameless. Their pricing tactics and treatment of small suppliers won’t be pristine.

And claims that they buy new sites for years before they develop them – known as land banking – have some merit.

But you must also level some personal blame at Banducci. He scored an own-goal in the Senate inquiry a few months ago by picking a fight with McKim, who was chairing the show, by refusing to answer a simple request about the company’s return on equity.

The Woolworths chief also walked out of a filmed interview with Four Corners – because he didn’t like the fact that the cameras kept rolling when he made a remark he wished he hadn’t. The actual remark was innocuous enough, his actions were not.

But all things considered, he is paying the price.

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