Woolies warns of festive supply pressure

Woolworths has warned its suppliers the first two weeks of January remain “the most problematic time of the year”.

Woolworths chief executive Brad Banducci. Picture: Adam Yip

Woolworths has warned its food and grocery suppliers the first two weeks of January remain “the most problematic time of the year’’ for keeping its shelves stocked as the nation grinds to a halt after Christmas.

The supermarket giant is putting in a fresh push to improve its supply chain over the holiday ­period.

It is concerned supplier bottlenecks could occur as shoppers look to replenish their fridges and cupboards after feasting over Christmas and Boxing Day. A delay by even one supplier can potentially snowball to create congestion across the retailer’s logistics networks.

In a letter sent to suppliers last week, and obtained by The Australian, Woolworths head of replenishment Paul Harker has reminded suppliers that while the supermarket and its supplier ­clients were naturally excited about Christmas, he expected their networks to come under pressure that could trip up the retailer in January.

“As you well know, Christmas is an exciting time of year for our customers and the key selling ­period for both our businesses,’’ Mr Harker said in his confidential letter to suppliers. “It is also the time of year that both of our networks come under the most pressure. In order to manage the event as smoothly as possible it is important that we collectively share and update our plans on a more frequent basis than any other time of the year.”

The conciliatory letter comes after years of prickly relations between Woolworths and its most important food and grocery suppliers, which has seen accusations of bullying and unprofessional behaviour slapped against the ­retailer as well as landing the supermarket group in court facing serious allegations of unconscionable conduct.

Last month the Federal Court was told Woolworths acted in a “slapdash, haphazard and unreasonable manner’’ in demanding payments from suppliers to make up a shortfall in its own profits. The case was brought by the Australian Competition & Consumer Commission against Woolworths, alleging it engaged in unconscionable conduct in dealings with a large number of its supermarket suppliers.

It alleged that in December 2014, Woolworths developed a strategy, approved by senior management, to make up a shortfall in gross profit by demanding $60.2 million of payments from those suppliers.

Supermarkets have pledged to work more co-operatively with their suppliers, and Woolworths in particular is eager to mend its relationship as a means to ­improve its stock availability and keep its shelves full of in-demand produce.

Stock replenishment has been a bugbear for Woolworths over the past year, as the supermarket group has been accused by shoppers of committing the cardinal sin in retail — empty shelves and unavailable stock — with chief executive Brad Banducci highlighting stock replenishment as a key strategic focus. This has seen Woolworths boost its staff numbers, especially on weekends, to restock fruit, vegetables and other groceries.

But it is in January that replenishment can be an acute issue, with industry data suggesting a 4-5 per cent reduction in service levels between retailers and wholesalers.

“For all of us the hard work doesn’t stop when Christmas comes around, but continues into the New Year,’’ Mr Harker has reminded suppliers in his letter.

“The first two weeks of January still remains the most problematic time of the year for availability.’’

Earlier this year Woolworths suffered an incident at its crucial Eastern Creek data centre when an emergency fire drill resulted in water damage to the company’s IT servers. The incident reportedly triggered supply problems from late May and into June, placing pressure on supplier relationships and stock availability.

Having worked on its internal systems since then, Woolworths is now turning to its suppliers to lift their game.

“We have been working together with our logistics team to develop the best plan we can to manage this peak period,’’ Mr Harker wrote.

“One of the ways you can assist is by making sure your loads into our network are delivered error free and on time.”

During Mr Banducci’s earnings results presentation to investors in August he highlighted the retailer’s progress in improving its quality of fresh food with more frequent replenishment.