Article from the Business Spectator below, makes reference to something I have commented on in the past with Woolworths becoming something of a Coles clone - fuel discounts, milk prices, celebrity chefs, how they report price inflation and now they have even switched their specials to commence mid week. I reckon if I worked in their marketing department I'd be making sure my CV was up to date.
As good a performer as Bunnings is, I can't help but agree with the comments on customer service in the article.
By now Woolworths? Michael Luscombe must be getting heartily sick of the quarterly comparisons with his group?s once-floundering rival, Coles. For the best part of two decades Woolworths has easily out-performed Coles. Now, however, it is Coles that has the momentum.
While Woolworths still dominates Australian food and liquor retailing, with a sales base more than 40 per cent larger than Coles?, it will irritate Luscombe that since Wesfarmers put its new guard of supermarket managers in place they have generated gradually accelerating sales growth to the point where they are now consistently growing their businesses faster than Woolworths.
In the latest half Coles? food and liquor group grew sales 6.3 per cent (6.4 per cent on a comparable stores basis) against Woolworths? 3.5 per cent (2.2 per cent). As Coles? managing director Ian McLeod said, that?s the 10th consecutive quarter of comparable store sales growth for the business.
More disconcerting for Woolworths is that McLeod and his team have been blind-siding them.
Whether it is leveraging its exposure to the Masterchef franchise, cutting prices across its product range, introducing its hormone-free meat policy or slashing the price of home brand milk, for the first time in recent memory it is Coles that is innovating and Woolworths that is being forced to react.
While Coles has been coy about the impact of the new format it is now starting to roll out ? it has refurbished 91 stores ? anecdotally it is getting major sales uplifts from the format. With another 650 or stores yet to be converted, there is massive upside within the chain, which is only about half way through its five-year transformation plan.
Woolworths, which was somewhat slow to respond to Coles? new-found aggression because it sought to protect its superior margins, is now moving more quickly to match Coles on price, which is part of the explanation for why both supermarket operators are experiencing significant price deflation. They are competing head-on on price, which is good for consumers and the inflation rate.
Coles, however ? despite its sales base being so much smaller than Woolworths ? is in dollar terms out-performing its rival, adding about $800 million of food and liquor sales for the latest half against Woolworths? $600 million.
Even in general merchandise, Kmart has been able to record modest sales growth (1.8 per cent) in the half, where Big W experienced a modest decline (2.8 per cent). Kmart?s new pricing strategy is producing very strong growth in transactions. Target, with its bigger exposure to apparel and the poor weather and consumer sentiment, didn?t fare as well, suffering a 3.1 per cent fall in sales.
The new front in the retail battleground is hardware, where Wesfarmers? Bunnings group reported sales growth of 4.4 per cent for the half, although comparable store growth was only 1.7 per cent. The business was, however, cycling double-digit growth in the second quarter of the previous year.
Bunnings is adopting more aggressive pricing and a more aggressive store-opening schedule as it prepares for the assault by Woolworths and its US partner Lowe?s on its dominance of the sector.
Woolworths? recent complaint to the Australian Competition and Consumer Commission about Bunnings? pre-emptive response to its entry to the sector suggests it may have underestimated how hard Wesfarmers would fight to defend its hardware franchise.
Had Coles been struggling to hang onto its sales base and earnings the Woolworths hardware strategy could have created a massive squeeze on Wesfarmers and forced it to choose between Bunnings? dominance and its earnings.
The solid improvement in Coles, the momentum flowing through the food and liquor businesses and the alacrity and aggression with which Bunnings? John Gillam is moving to defend his position has complicated what once would have appeared a straightforward and decisive strategy for Woolworths.
Now it has to respond to Coles to protect its food and liquor position while distracted by a very ambitious, very expensive and very complicated roll-out of its hardware stores within a very demanding timetable.
Luscombe and his team are first-rate retailers and Woolworths? record speaks for itself. For the first time since that brief period in the mid-1990s when Dennis Eck managed a significant up-lift in the performance of Coles? supermarkets ? and Woolworths responded by elevating Roger Corbett to chief executive, kick-starting a decisive resurgence in its dominance ? Woolworths is, however, under some competitive pressure.
For the Wesfarmers camp, which acquired the Coles? businesses in late 2007, that is a near-remarkable turnaround in a remarkably brief period.
WES Price at posting:
$34.41 Sentiment: Hold Disclosure: Held
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