Basics come first, says Woolworths

The group will take a range of steps to revamp its offering, along with the previously announced knifing of ‘Select’.

Store refurbishments are on Woolworths’ agenda, with newly spruced-up stores showing good sales returns.

Woolworths chief executive Brad Banducci has set himself the task of ‘first getting the basics right’ before mapping out a long-term plan to resurrect earnings growth and revive the nation’s biggest supermarket chain’s competitive edge.

Presenting to investors and analysts over the last week, Mr Banducci and his management team have sketched out a range of opportunities at Woolworths that the retailer will take immediate action on, such as killing off the low value ‘Woolworths Select’ homebrand and a number of tasks now being taken on at a divisional level instead of at the corporate’s head office.

However, the knifing of Select is not new, with Woolworths announcing its plans to phase out ‘Select’ a couple of months ago as part of a new homebrand strategy unveiled earlier this year.

Mr Banducci has told analysts in a recent update that he was aiming to grow food and liquor sales by 4 per cent, and volumes by 2 per cent.

Meanwhile, the implementation of a SAP system through its stores was being progressed, with early hiccups to be eased from the end of June, as Woolworths works at limiting its issue of running out of stock on the shelves – a sure killer for any retailer, especially when competitor Coles is streaks ahead in terms of service, price and offering.

“Management conceded that given the number of pressures on the business the focus is on improving the basics rather than outlining a long-term master plan,’’ said Morgan Stanley retail analyst Thomas Kierath after a meeting with key Woolworths management.

“Hence, the timing and shape of a turnaround was left undefined.

“The turnaround was likened to that of a ‘supertanker’. Industry margins are ultimately set by competitor behaviour. Aspirations are to generate 4 per cent sales growth and 2 per cent volume growth.’’

Store refurbishments were also on the agenda, Mr Kierath said, with newly spruced-up stores showing good sales returns.

“100-150 stores are to receive a capex-light refurbishment through fiscal 2017.

‘’Stores have shown up to a 7 per cent sales uplift post refurbs. Management is looking closely at the store network with a high likelihood that future supermarket space growth will slow rather than stop altogether.”

And Mr Kierath confirmed Woolworths ‘Select’ homebrand range will be consigned to the archives.

“Woolworths Select is dead! A continued push to improve pricing has led to Homebrand being replaced by Essentials, and Select will be rebranded as just Woolworths. Management feels that pricing differences have ‘more or less’ been reduced.”

In his note to clients, Mr Kierath said a number of shared service functions were now being run at a divisional rather than head office level to improve divisional accountability and efficiency. “Management isn’t prepared to divest any businesses at the risk that it may regret this at a later stage as they may prove strategic.

‘’The net impact of changes to share services is reduced cost and greater efficiency.”