Woolworths reiterates guidance, sees “frugalism” as defining feature of shoppers

Posted by Daniel Palmer on 26th November 2009

Australia’s largest supermarket retailer, Woolworths, has today told shareholders that they remain on track to meet their targets this year as changes to consumer behaviour continue to assist their supermarket operations.

The retailer, which is set to celebrate its 85th birthday next week, reaped a record profit result last year of $1.8 billion after tax and expects this to climb as much as 11 per cent in the current financial year.

“Whilst we have started the 2010 financial year optimistically, there are still a number of uncertainties facing the economy, such as rising interest rates,” Chief Executive Michael Luscombe informed shareholders at their Annual General Meeting. “Subject to this uncertainty, Woolworths reconfirms its guidance as follows: sales for 2010 are expected to grow in the upper single digits … (and) net profit after tax is expected to grow in the range of 8% to 11%.

Consumer behaviour shift boosts private label 

Mr Luscombe said that consumer trends that saw increased focus on price had assisted them in two ways: by attracting more people to their private label products; and, by drawing more people to the supermarket and away from the restaurant.

“We witnessed marked changes in consumer behaviour and shopping trends as people sought to make their household budgets stretch further,” he advised. “Private label thrived as customers switched to products that offered the same quality as brands but for a lower price.”

“Our supermarket and liquor businesses captured spending that would otherwise have gone to restaurants.”

Mr Luscombe said that, despite the improvements in the economy, ‘frugalism’ remained the “defining feature of the Australian consumer”.

Loyalty joint venture meeting expectations

Woolworths advised that their joint venture loyalty program with Qantas was performing very well, with 1.6 million people (out of the 4.2 million Everyday Rewards cardholders) linked up to receive frequent flyer points when they shop.

“This program has enormous potential for our business,” Mr Luscombe maintained. “Not only is it increasing sales but its also vastly increasing our knowledge about our customers in a way that will help us to continually improve our services and ranging.”

Acquisitions

The retailer indicated that they would still actively pursue acquisitions if deemed suitable, although large purchases appear unlikely given the funds they will be directing toward their new hardware business.

Woolworths has been quite active in the M&A sector this year, with purchases of Langton’s, Macro and a share in Gage Roads Brewery – all of which have gone to plan, Mr Luscombe suggested.

“The acquisition of Langton’s during the year has boosted our premium wine offer in our liquor business,” he noted. “The recent purchase of a 25% stake in Gage Road Brewery has positioned us well to continue to increase our private label offer in liquor.”

“The acquisition from Macro Wholefoods of seven existing store leases and a development site has accelerated the expansion of the Thomas Dux format in Sydney and Melbourne. Thomas Dux now has 10 stores in operation and continues to be well supported by customers.”

Mr Luscombe added that Macro private label products will be progressively rolled out throughout their network over the course of the year.

Their network, meanwhile, continues to be developed, with 43% of stores having now been updated to the ‘2010 format’.