Woolworths remains bullish, market share boost expected

Posted by Daniel Palmer on 27th November 2008

Australia’s largest supermarket operator, Woolworths, has informed shareholders that their growth outlook remains on track, with plans to strengthen their market position in coming years. The nature of their business would partially “shield” them from the impact of any downturn, with investments unlikely to dry up because of economic conditions.

Speaking at their AGM today, Woolworths Chairman James Strong outlined his belief that there was “continuing potential” to expand their market share in both New Zealand and Australia, with their capital strength making acquisitions a possibility. Their long-term investments also presented the ability to develop the company. “Because of its long-term investment in its logistics systems and store refurbishments, there is significant opportunity for Woolworths to introduce new products, services, categories and formats,” Mr Strong advised.

He also hinted that international expansion continued to remain under consideration but cautioned that it would only be undertaken in a “prudent and disciplined fashion”. Woolworths has been linked this year to expansion in both India and New Zealand.

Investment in the company and trying to improve the shopping experience has assisted the growth in recent years, according to CEO Michael Luscombe, and is set to continue in the current environment. “This (investment) is even more critical in challenging times,” he noted. “Strong companies will always continue to invest in the long term growth of their businesses. Woolworths is exactly that kind of company.”

Mr Luscombe told shareholders the roll-out of the Woolworths brand in Victoria – where their supermarkets have been Safeway branded for 23 years – has been well received by shoppers and a gradual rollout will continue over coming years. The rollout will coincide with that of their 2010c format stores, which are more environmentally friendly and feature the updated Woolworths branding. Three hundred and fifty stores are due to be refurbished in FY08/09.

Thomas Dux, the upmarket grocery chain launched by Woolworths earlier this year to compete with gourmet food grocers, has performed very well, according to the Company, and they have plans to extend the concept in the future. “We have opened two stores in Sydney so far, both of which are enormously successful and we look forward to expanding that brand over time,” Mr Luscombe advised.

The primary in-store innovation this year was the introduction of self-service checkouts – which they have previously reported to have been more popular than anticipated. They also introduced unit pricing to their stores a few weeks ago.

Mr Luscombe remained reasonably bullish about the state of the economy, believing the doomsayers to be wide of the mark. “The media has been quick to seize the prophecies of doom and there has been no shortage of self appointed prophets only too willing to talk down the Australian economy. But I am not one of them,” he said. “Without a doubt Australia is experiencing some challenging times, as are many countries around the world. Many retailers have been affected and are experiencing material slowdowns in sales.”

“All retailers large and small take a bit of deep breath in as they approach the crucial Christmas trading period,” he added. “Although this year, that breath might be deeper than usual, I believe the Government’s stimulus package, the interest rate cuts and falling petrol prices will all contribute to a general underpinning of the Christmas trading season.”

Mr Luscombe added that, with their primary business being in consumer staples, Woolworths was “somewhat shielded” from a downturn and maintained profit guidance of a 9-12% increase for the coming year. “And I have every confidence that the CEO of Woolworths will be standing in front of you at future meetings, not just next year but the year after and the year after that, with the same positive outlook for our business,” he concluded.