Woolworths talks up turnaround progress, admits it underestimated Aldi

Cairns has made a frank admission on Woolies’ customer treatment, while Banducci admits it underestimated Aldi.

Brad Banducci pulling a worm out of the Woolworths logo. Artwork by Sturt Krygsman.

Supermarket behemoth Woolworths has admitted to underestimating smaller rival Aldi as it talked up the group’s “significant progress” in its turnaround plans to staunch the bleeding of market share from its core grocery operation.

The group’s leaders have also expressed their disappointment in the departure of Sally Macdonald from the Big W business, at its AGM in Sydney today.

Amid a flurry of questions from disgruntled shareholders in one of the longest AGMs of the season, chief executive Brand Banducci said Woolworths had dropped the ball in response to the local entry of German discount grocer Aldi.

“We didn’t treat Aldi with the respect they deserved,” he admitted.

“We’ve really tried to work hard on our own brands over the past 12 months (to counter Aldi).”

The comments come in the wake of a 2016 financial year in which the company announced a heavy loss of $1.23 billion.

Mr Banducci said the retail group’s first full-year loss in 26 years was a bitter pill to swallow but one that hopefully paves the road for better shareholder in coming years.

“No chief executive likes to announce results like these, but they are the outcome of the hard decisions we believed we had to take to begin rebuilding your company,” he said.

“I’m pleased to say that over the past 10 months, because of many large and small decisions, we have made a significant amount of progress. Clearly we still have a long way to go but it is very pleasing to now be underway.”

Mr Banducci said momentum had been maintained after first-quarter results released early this month, which showed Woolworths’ first like-for-like sales growth in almost two years.

“Our Australian food trading performance continues to improve, driven by continued growth in customer numbers, which in turn is driving positive comparable sales growth,” he said.

Chairman Gordon Cairns went a step further in delivering a frank admission the group had abused the trust of its clientele.

“We did allow our supermarkets to deteriorate. (And) we lost the trust of our customers,” he said.

“We abused it. It’s very hard to get it back and that’s why we see it taking three to five years.”

The company’s leaders said they had seen early rewards from a shake-up of its loyalty program, with a “material improvement” in customer satisfaction seen since the relaunch in September.

“The relaunch also says a lot about the culture we aspire to have — we got it wrong but we listened to our customers and acted accordingly,” Mr Banducci said.

Mr Cairns also touted “significant progress” at the company, despite intense grocery competition and persistent headwinds in the Big W discount department store operation.

Big W’s lack of traction preceded the sudden departure of its chief executive, Sally Macdonald, last week, raising the prospect of a sale of the business in some analyst notes.

“I’m personally disappointed that Sally chose to leave us,” Mr Cairns said.

“The board is disappointed with the performance of Big W, and, while acknowledging that the discount department store market in Australia is a challenging one right now, wants to reassure all shareholders that we are focused on making decisions for Big W that will enhance shareholder value in the long term.”

He also admitted the planned Big W turnaround had been “harder than we had anticipated”.

However, Mr Cairns reiterated a sale would not be considered until improvement is seen in its results.

“The truth of the matter is we let it deteriorate. If we tried to sell it now we would probably get nothing for it,” he said.

Mr Banducci added that while Big W’s results have not stirred much optimism, Ms Macdonald had made strides toward a successful long-term turnaround.

“In her time with the company, Sally made material progress in restructuring the business in many areas, including direct sourcing, product development, supply chain, business simplification and cost reduction,” he said.

“We plan to maintain our focus on this transformation.”

Chairman Mr Cairns also outlined the actions that had led to the group’s exit from the home improvement space earlier this year, defending the departure route amid a legal battle with joint venture partner Lowe’s.

“This has been a complex process, and at all stages we sought to act cooperatively with Lowe’s, our joint venture partner, to find a commercial solution,” he said.

“The board believes that these outcomes were the best available for our shareholders, our joint venture partner, and of course the Masters team, its suppliers and our customers.”

The company is hopeful the legal actions with Lowe’s can be resolved without going through an elongated court process.

“We are quietly confident and optimistic it can be settled ... rather than ending up with the lawyers,” Mr Cairns said.

The group’s liquidation process at Masters has seen intense discounts hampering rivals in the space but the end of that process is near, with inventory due out of the stores by December 11.