Its 25 years since the turnaround at Woolworths was kicked off by retailing legend Paul Simons who decided to use the phrase: ‘The fresh food people" to tag the struggling retailer to make it different from the then dominant Coles Myer.
It worked, kick starting a comeback from Woolies that is part of Australian corporate lore as Simons’ successors, especially Roger Corbett revamped not only the retailer, but the entire supermarkets business by chasing gains from suppliers to stores.
There were a couple of hiccups: Reg Clairs was replaced, costs rose sharply in the late 1990s and Michael Luscombe, who followed Corbett in the late 2000s, failed to find an expansion strategy, apart from the move into hardware that will cost more than $1.5 billion.
But that expansion plan seems to have occupied too much time of Woolies board and management and they failed to respond to the rival Coles, after it was bought by Wesfarmers in 2007.
Wesfarmers changed Coles management and brought in new blood in the shape of hardened UK retailer, Ian McLeod. Other experienced UK operators were hired and through aggressive price attacks and marketing, have lifted Coles sales and earnings growth, at Woolies’ expense.
The upshot is that in the core battle of the nation’s supermarkets, Coles has wrested growth momentum from Woolies and rammed home its advantage in the December quarter, according to figures out yesterday.
"Coles’ total food and liquor sales for the second quarter of the 2012 financial year grew by 4.3 per cent to $7.3 billion. Total sales in the first half of the 2012 financial year increased by 4.9 per cent to $13.6 billion.
"In the fourth year of the turnaround, Coles delivered comparable food and liquor store sales growth of 3.7 per cent in the second quarter and 4.4 per cent in the first half, with underlying volume growth continuing strongly.
"Volume growth exceeded sales growth as deflation in fresh produce and continued investment in value led to food and liquor deflation increasing to 2.4 per cent in the second quarter. Deflation for the quarter reflected an increase from deflation of 1.8 per cent in the first quarter, resulting in deflation of 2.1 per cent in the first half." Coles management said yesterday.
Compare that with what Woolies said on Tuesday:
"Australian Food and Liquor sales for the half year were $19.6 billion, an increase of $0.8 billion or 4.3% over last year. Sales for the second quarter were $9.9 billion, an increase of 4.1%.
"Comparable store sales in Australian Food and Liquor for the half year increased 1.5% (HY 2011: 2.2%) and for the second quarter increased 1.1% (Q2 2011: 2.5%).
"Sales growth was impacted in the second quarter by significant deflation particularly in produce, seafood, bakery and deli. Produce deflation was experienced in all months of the quarter and by December was double digit."
Comparable store sales is the best way of comparing retailing performance and Coles beat Woolies hands down: 3.7% for the second quarter (1.1% at Woolies) and 4.4% for the first half (1.5% for Woolies).
It’s not a game over situation: Woolies is a very talented retailer, but it will now have to run very hard to try and win back customers and sales and profit growth.
Closing the underperforming Dick Smith chain (which, remember, had a better sales performance than supermarkets in the December quarter) is not the answer, it’s a reaction to the slowing growth in profit margins.
Underlining just how much Woolies and its new management team remains behind Coles was the news on Tuesday that its rival had started a price war in fruit and vegetables to take advantage of a surge in production and falling prices.
Coles will discount selected fruit and vegetable lines by as much as 50%. Coles launched its attack hours before Woolies revealed its December quarter and half year sales figures, which were weak, to say the least, especially in the company’s core, its Australian supermarkets.
The option was always there for Woolies to counter Coles’ recent spate of price attacks with one of its own in this area.
It missed the opportunity, which says a lot about the sluggishness of Woolies management and board.
No wonder the retailer appointed an experienced UK retailer and consultant to the board this week. It needs all the help it can get.
Woolies’ highly defensive response to Coles latest attack tells all about the inability of management and the board to respond to its rival and get on the front foot. That way of thinking has to change if it is to regain its former status as the nation’s leading retailer.
Woolies accused Coles of misleading shoppers with its latest round of price cuts to fruit and vegetables. That’s standard tactic, and not very convincing.
Woolies newish CEO Grant O’Brien said falling fresh produce prices were nothing new and Coles was just conducting a promotion.
"Reducing prices in produce is really no news," he told analysts in a conference call after the release of the retailer’s first half sales figures.
"If you take a basket of items which are on promotion in our store and compare it to the items that are on promotion in Coles stores you’ll get a 29 per cent difference in favour of Woolworths customers.
"It’s a promotion that happens every day of the week in retail land.”To say it’s a huge reduction and a market changing or game changing is in a way to mislead."
So why wasn’t Woolies telling its customers that prices were down, down, down (sorry, that’s Coles slogan and it’s certainly been hammering that message).
The price cuts come after earlier battles between
