Woolies fears energy cost increases will cut competitiveness

//Woolies fears energy cost increases will cut competitiveness

Woolies fears energy cost increases will cut competitiveness

03 May, 2017

Eli Greenblat

Courtesy of the Australian

Woolworths chief executive Brad Banducci fears high energy prices he is forced to pass on to shoppers could ruin the chain’s price competitiveness with Coles and Aldi, just at a time when the nation’s biggest supermarket group has posted its strongest quarterly sales growth in seven years.

Mr Banducci warned at The Australian’s Global Food Forum in March that while energy-efficient installations in his stores were helping to soften cost increases, it was like “trying to outrun a bear”, and eventually consumers would need to pay more for their groceries as a result.

Releasing Woolworths’ third-quarter sales, which showed strong momentum continuing since Christmas as food sales rose 5.1 per cent to $9.3 billion, Mr Banducci repeated his warning and hoped high energy prices would not dent Woolworths’ investment to lower prices that had underpinned its turnaround.

“We are working very hard to offset increases we see coming through in electricity prices with productivity savings so that we don’t need to lift prices for our customers, given all the work we have done in price trust with customers and we are making progress,’’ Mr Banducci said. “But we are not there yet, and we have to be very cautious that we don’t undo all that good work by putting prices up where it’s not clearly justified.’’

Over the past year, Woolworths has invested more than $1bn in lowering shelf prices to match rival Coles and be more competitive with bargain chain Aldi, and the results have been on show as Woolworths posted like-for-like sales growth of 4.5 per cent for the March quarter, its best result since the first quarter of 2010.

It also beat Coles, which had third-quarter comparable sales growth of 0.4 per cent. It was the second time in seven years it had recorded stronger sales growth.

But Mr Banducci resisted the urge to declare “mission accomplished”. Woolworths was still “not as good as it could be on fresh food” and there was more to be done as it pivoted from a reliance on promotions to more of an “everyday low price” model.

In the past 12 months, the number of items on an everyday low price pegging had increased to 3200, from 900, but the chain was still cutting away at shelf prices, which fell by an average of 2.5 per cent in the quarter.

Any victory on the part of Mr Banducci at his supermarkets was tempered by more bad news flowing from Woolworths’ troubled discount department store chain Big W, which is about to embark on yet another strategic plan, the latest in a string of restructures to resuscitate earnings.

Woolworths warned yesterday that due to heavy investment in Big W it was likely to report a loss before interest and tax of $115m-$135m in the second half of 2017, up from guidance of a loss of $88m. Big W could post a full-year loss of as much as $162m for 2017.

In the third quarter, total sales at Big W fell 8.6 per cent to $757m.

“Big W is a work in progress and its turnaround will be a multi-year journey,” Mr Banducci said.

“We need momentum to get optionality in the business,’’ he said, signalling Big W could be sold when it showed a sustainable improvement in its performance.

Shares in Woolworths rose 32c to $27.35.

2017-05-03T10:14:08+10:00 May 3rd, 2017|