Woolworths braces for Amazon’s arrival as competition hots up

Woolworths has set up a separate unit to respond to the looming arrival of US online retail giant Amazon.

Gordon Cairns and Brad Banducci at the Woolworths meeting in Sydney yesterday. Picture: Hollie Adams

Woolworths has set up a separate unit to respond to the looming ­arrival of US online retail giant Amazon, the latest in a string of emerging competitors, as the company completes a long-term turnaround of its supermarket business.

Discussing the re-election of former US retail executive Kathryn Tesija to the Woolworths board, chairman Gordon Cairns revealed that the company had decided not to distract staff involved in meeting competition from Coles and German discount chain Aldi and instead set up a separate unit to respond to the threat by Amazon.

Mr Cairns said Ms Tesija had been providing “coaching and insights’’ to that team.

Ms Tesija told the meeting that Amazon was a competitor in the online space but could not replicate the network of well-­located stores that Woolworths had built up over 91 years in cities across Australia.

“They are a formidable competitor,’’ Ms Tesija said. “They are somebody we should take ­seriously.” Amazon is reported to have delayed its launch in Australia from May to September to expand its offering from general retail to fresh food in a move that would pose a threat to established retailers.

The company plans to open distributions centres in capital cities around Australia next year that would enable it to deliver goods to customers and “fulfilment centres’’ where shoppers could collect goods.

According to a newspaper report of a conversation with Australian investor Justin Braitling, Amazon plans to “destroy the retail environment” in Australia.

The arrival of Amazon in Australia poses a potential threat to all local retailers, including Woolworths and Wesfarmers, which own food, liquor and general merchandise stores.

Woolworths is in the first year of a major turnaround of its supermarket and general merchandise businesses and is under attack from Coles, expanding fresh produce specialist Harris Farm and German discounter Aldi.

Mr Cairns pleaded with shareholders at the annual meeting in Sydney yesterday for time to turn the company around, and reaffirmed plans to fix the Big W department stores before considering a sale.

He outlined plans to fix fresh food and own-brand offerings as it sought to restore its positions as the nation’s pre-eminent retailing business.

“We’ve got a long way to go — it will take three to five years to fix the supermarket business,’’ Mr Cairns said. “I would ask you to be patient and take us not just on our word but on the results that we deliver on a six and 12-month basis.’’

The admission follows a horror year for the retailer that included a $1.2 billion annual net loss, a dividend cut and legal action by the Australian Competition & Consumer Commission over its demands for cash from suppliers.

Woolworths was forced to take heavy losses on closing its Masters hardware joint venture, sell the Home hardware business and search for a new chief executive for Big W after the resignation of high-profile former Oroton chief executive Sally Macdonald.

The resignation, after 10 months and following a 2.1 per cent fall in sales, reignited speculation that Woolworths would look to sell the business. But Mr Cairns said it would be better if the company tried to turn around its performance: “The truth of the matter is that we have let it deteriorate and if we tried to sell it we would probably get nothing for it.’’

Chief executive Brad Banducci said there had been 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,” he said.