Five challenges for Brad Banducci

The pressure is on Woolworths’ new chief executive as he looks to restore market confidence in the supermarket chain.

Newly appointed Woolworths CEO Brad Banducci poses for a photograph in a food store at the company headquarters in Bella Vista. February 26, 2016. (AAP Image/David Moir) NO ARCHIVING

Now that Woolworths has finally appointed a new chief executive, Brad Banducci, the retailer’s former supermarkets boss has his work cut out to win over investors again.

Here are his five biggest challenges.

Supermarkets. Getting the engine humming again. Woolworths needs to grow top line sales and break the perception around prices. It has been trailing rival Coles in quarterly like-for-like sales for years, yielding market share. In the latest half, same-store sales in supermarkets fell 0.8 per cent at the same time as Coles sales jumped 4.3 per cent. Earnings collapsed by 31.7 per cent, partly due to the desperate need to cut prices to win back customers. Investors have been patiently waiting to see some improvement as each earnings report passes, and have been disappointed each time.

Restore market confidence. Australia’s largest supermarket chain has been without an overarching strategy as chairman Gordon Cairns has tried to piece together a new leadership team from September and identify a new CEO. Banducci faces a years-long battle to restore Woolworths to its “glory days” of dominance in the supermarket sector as it struggles against increasingly agile competitors. A series of public-relations blunders, most recently over the plan to sever the Qantas Frequent Flyer loyalty tie-up, compounded the perception of patchy, ad-hoc strategy.

Find his own replacement for the core food and liquor business. Banducci’s appointment as CEO leaves the managing director role of Woolworths Food Group empty, in the business that generates 85 per cent of the group’s earnings. His replacement needs to do work on breaking perception that Woolworths is the more costly alternative to Coles, Aldi and Costco as it clung to duopoly-era fat margins has been hard to break.

Get Big W competitive again. The discount department store space has been a tough one for both Big W and rival Target, owned by Wesfarmers, as consumers facing growing multiples of alternative sources for cheap clothes, toys and household basics. Woolworths needs to simplify the business in the same way Kmart focused on slashing variety to focus on basics. Same-store sales at Big W slumped 4.5 per cent in the first half, while profitability dived 38.7 per cent as stores cleared out useless inventory.

Exit Masters. With a crippling $3.25 billion writedown on the books to date, the only remaining decision is whether to sell or shut down the disastrous home-improvement chain that failed to make a dent in Bunnings’ dominance. The sooner the board makes that painful decision, the quicker Banducci can restore much-needed attention and resources on the core business.