Woolworths on tech fast-track

Craig Drummond, photographed in his new role as president of Geelong Football Club. Picture: Peter Ristevski

Woolworths boss Brad Banducci will spend $1.8bn on improving his retail capacity this year with the emphasis on digital which is circa $700m more than Steven Cain at Coles will spend and the gap between the two widens by the day.

Last half Woolies supermarkets generated $18,500 per square metre in sales against Coles at $18,100 and Banducci has more stores in better locations even before we get to the fact Cain is a couple of years behind Woolies on his e-commerce strategy with the Ocado roll out not due until 2023.

Covid has turned the advantage to Metcash and the corner supermarket which in paper means market share losses to both Coles and Woolworths but Banducci points to his online sales and asks – what is the market?

In name at least, customers are winning share, when you consider the sage advice from then Woolworths boss Roger Corbett back in 2005 who when asked by this column about online shopping said “we have the supermarket set up so you do all the work – why would we change”.

Both Coles and Woolworths have lost some share to the Metcash corner store while Aldi has stayed flat at around 9.4 per cent.

Last week Cain waved the immigration warning flag which as noted was more a Coles specific problem because it is overweight Victoria and is more exposed to the international student market.

Banducci and Scentre Group’s Peter Allen both agreed Coles was speaking its own book and while both are big immigration supporters they are not concerned it will disappear as the world settles into a post vaccination Covid world.

Wooloworths CEO Brad Banducci. Picture: John Feder

Same store sales last quarter for Woolworths were 7.1 per cent last quarter against five per cent at Coles and with the former having 38 per cent market share in supermarkets against 30 per cent for Coles the gap is getting bigger.

Banducci is a manager straight out of the business textbooks which frustrates some in the market as he tends to talk business concepts rather than facts and figures but there is no discounting he is doing a great job at Woolworths.

This goes right down to policies like his $50m future of work fund which is aimed at providing his 200,000 staff opportunities to retrain and learn new skills rather than join the unemployment lines.

Online sales are around 8.2 per cent of total supermarket sales and the percentage will only grow.

Coles online share is 5.6 per cent.

Right now 80 per cent of all Big W sales start online even if just looking at the computer to find store opening hours but there is more traffic online than physically in stores.

At the supermarket it‘s more like 65 per cent but Banducci figures that will rise strongly with consumers looking more before they come into the store to shop.

Online fulfilment is tougher at the supermarket where the average basket has 50 to 60 items against two at JB Hi-Fi.

But using a mix of the local store and central fulfilment centres Banducci is pulling every lever he can to get people spending more time with Woolworths and with earnings margins up from 4.8 per cent to 5.1 per cent so far it‘s working a treat.

DRUMMOND EXIT

Craig Drummond chose a strong result to announce his exit from Medibank after what will be five years at the helm for the former banker and stockbroking analyst.

His market returns with an underperformance by 38 per cent are not flattering and do not reflect on the marked positive changes he has made at the health insurer.

These are better shown by the fact member numbers are growing by some 2.7 per cent and 1.32 per cent for the Medibank brand in the latest half which are the first increases since 2013.

The last 12 months has seen a marked improvement for health funds with the pandemic increasing awareness on health risks but Drummond’s customer focus has been the hallmark of his time at Medibank.

He stemmed sharp losses in market share by installing within the company a customer first metric.

This was done in part by installing some simple public company ethics in the place starting with a strong purpose-better health-better lives, strong values and great people.

The company’s stock price was down 1.9 per cent at $2.83 a share on Wednesday against a result which surprised on the upside tells you the market is concerned at the uncertainty of Drummond leaving.

Net profit of $226m came in ahead of estimates at $209m and management expenses of $535m or a management expense ratio of 7.5 per cent which was in line with market.

There was some gross margin expansion and in short the numbers are heading in the right direction helped in part by a Covid-induced increase in out of hospital care.

Medibank increased its market share by 28 basis points to 27.2 per cent in the half which puts it head of BUPA at 25 per cent.

The obvious internal heir apparents for his job are David Koczkar, the chief customer officer, Dr Andrew Wilson who runs strategy and healthcare and chief financial officer Mark Rogers.

Drummond has just turned 60 which some would regard as on the young side but seems intent on stepping aside from executive duties.

He has of course taken on the job as Geelong Football Club president which will take some time.

REGULATOR STEPS UP

ASIC has finally opened the door to potential increases in its enforcement action by launching an immunity policy for a range of serious offences including insider trading and market manipulation.

This follows the ACCC for 25 years or more have had an immunity policy and has scored some of its best hits by offering immunity to the first party in the door to admit to a breach of the law.

The competition regulator’s case in 2008 against the late Dick Pratt for price fixing in the cardboard box market came after the other part Amcor came in to have a chat to the regulator and the present case against the banks ANZ case came after JPMorgan knocked on its door.

ASIC has cut deals with some but until now no formal immunity policy and given the difficulty in proving insider trading laws this change can only help ASIC to be a better enforcer.

The move shows how slowly the regulatory wheel turns sometimes but full marks to the present regime for at last changing.

VIVA PLEDGE

Scott Wyatt at Viva laid down some simple numbers for Energy Minister Angus Taylor — operating cash flow at his refinery last half was negative $212m and for his non-refinery business was positive $574m.

Wyatt was collecting on the subsidies on offer, but the message seemed plain — if Taylor is so keen on maintaining refining capacity in Australia against the economic logic, then he better get his wallet ready.

Viva isn’t a charity last time we looked.