Woolworths’ growth stimulated by re-investment

Posted by Daniel Palmer on 16th July 2008

Woolworths, Australia’s largest supermarket operator, has today announced full year sales of $47b, representing a 10.7% increase on last year.

Woolworths advised that their food and liquor operations had a 7.9%* sales increase for the year, with inflation for the year of 2.9%. Fourth quarter inflation (2.9%) was seen to drop on the back of a deflation in fruit and vegetable prices, and was markedly lower than the figure of 4.5% registered during the third quarter.

Woolworths CEO Michael Luscombe was pleased with the results and believes re-investment will stimulate growth for the company. “2008 has been an extremely rewarding year with our business performing well overall,” he said. “The significant re-investment in each of our businesses will continue to drive future growth. These key investment initiatives include the rollout of our 2010c format stores in Supermarkets and our new format BIG W which are both progressing well.”

The 2010c format stores are designed to reduce the carbon footprint of their stores, with more efficient lighting and refrigeration among their features.

Woolworths has also embarked on a strategy to update their use of technology. This has included the introduction of stores with self-checkout technology and the flagging of improvements to their online grocery sales system. The opening of their first Thomas Dux stores, an upmarket grocery chain concept, was completed in an attempt to reach a new segment of the market and, according to reports, India may represent the next frontier, as the ACCC places more pressure on the national expansion plans of the major supermarkets.

Thirty new supermarkets were opened by Woolworths in Australia last year, though nine closed permanently and seven were closed for re-development. They now operate 780 supermarkets within Australia and 201 in New Zealand, while freestanding liquor operations (which includes Dan Murphy’s) increased by 21 to 233.

The year was not all positive for Woolworths, however, with increased scrutiny on their market power in Australia from both the media and the competition watchdog. This scrutiny was only strengthened during the Grocery Price Inquiry when they admitted that they had higher margins in Australia than New Zealand margins because they were not the price leader in NZ. “We may have to sometimes reduce prices further in New Zealand to make money,” Mr Luscombe said in May. “The issue in New Zealand is we have a very strong competitor who has been very stable for a long time.” Claims of a lack of competition in Australia were strenuously refuted, but it appears that the ACCC is set to make a number of recommended changes to legislation when they report their findings at the end of the month.

*normalised figure, as it was a 53-week year.