Woolworths Food Group has today outlined its three-year strategy to win the trust of its customers, and increase its share of customers’ food spend through lower prices and “improving all aspects of their shopping experience”.

“We are placing the customer at the start of everything we do,” said Brad Banducci, Woolworths Food Group Managing Director. “This strategy will result in lower prices, more compelling offers, and greater innovation,” he said.

“What is clear is that while lower prices are essential, the true battleground is the overall customer experience,” Mr Banducci said. “So we will not be beaten on price, and we will provide better convenience, superior freshness and a more appealing range, and a focus on innovation,” he said.

Mr Banducci said that although Woolworths has 14.6 million regular customers and 500,000 online customers who were visiting Woolworths more frequently than ever before, its customers were “also getting fewer of their needs exclusively from us”.

“Put simply, we need to gain customer trust and a greater share of their shopping basket, and we have a clear plan and the investment capacity to do so,” Mr Banducci said. “By getting Customers to put us first, we can regain the sustainable sales momentum we need to extend our leadership,” he said.

Strategy to focus on three key principles

The Woolworths Food strategy will focus on three key principles:

1. Offer: Improving the core offer to ensure that customers put Woolworths first;
2. Growth: Innovating to meet more of these customers’ needs; and
3. Efficiency: Creating further customer value by organising for success and executing the ‘Lean Retail’ model.

Woolworths said it was already well underway in implementing the first wave of this strategy with a major investment program that includes:

• $125 million of price reductions for customers since January 2015, taking Woolworths’ value position to its most competitive level since January 2014, with more to come;
• Matching Woolworths online pricing with store pricing;
• An additional 58,000 work hours added each week into stores to lift customer service levels, to be followed by a further 63,000 hours next financial year;
• An extra half-day of stock levels added in the short term to shelves across the store network to boost availability; and
• A major focus on improving the range and freshness of fruit and vegetables.

Pricing and range strategy

Woolworths said a new pricing and value strategy will be implemented to neutralise Coles and contain Aldi’s impact on Woolworths’ sales. Measures will include lower pricing, better ranging, targeted customer offers using a revised and improved loyalty system, and a detailed strategy for improving its Own Brands.

Woolworths said Own Brands would play a “key role” in competing with limited range discounters. Woolworths said it would create “higher quality and better priced” Own Brands to close range gaps where no branded alternative exists.

New stores and refurbishments

Woolworths said its strategy involved rebalancing capital expenditure between new stores and existing store refurbishments.

Woolworths said it would refurbish more than 80 stores per annum for the foreseeable future, compared with 23 stores in FY14 and 61 in FY15. Refurbishments will be designed around local customer preferences and will be prioritised in areas where Woolworths sees the greatest potential for customer growth. Woolworths said it would continue to develop 20-30 new stores per annum in line with population growth and to address gaps in its network.

Delivering “new products and better experiences” for customers

Woolworths Food Group has established a new division called Woolworths FoodCo. It will have responsibility for developing new product categories, improving its fresh meat supply and processing facilities, and developing strategic sourcing relationships with Woolworths’ primary industry partners.

As part of its commitment to grow into the Food for Now/Food for Later categories, Woolworths has announced it will partner with Western Sydney based, high-quality food manufacturer Beak & Johnston to deliver Australia’s first dedicated facility for ultra-fresh ready-to-cook and ready-to-heat meals. Under a 12-year contract, this facility will make a growing range of meals for Woolworths.

Online

Woolworths said its Food strategy would “harness Woolworths’ existing strength as Australia’s and New Zealand’s largest domestic online retailer” by increasing investment in multi-channel customer experiences. Online pricing has been aligned to in store pricing and a range of new Click & Collect locations will be opened including drive-thru collection points to increase customer convenience.

Around 250 new Click & Collect locations will be added over the next two years, taking the total Click & Collect network to approximately 1,000 stores.

People and Performance

Mr Banducci outlined a simplified, “customer-first” system for measuring the performance of the in-store teams, with a new 8-metric scorecard to replace the former 20-metric system, and with customer metrics placed at the top of the rankings.

Australian and New Zealand supermarkets have been streamlined into one division which will be called Woolworths Food Group with Brad Banducci as Managing Director.  Dave Chambers is Director, Woolworths Supermarkets and Steve Donohue is Director, Countdown Supermarkets.

Steve Greentree will be Director, Woolworths FoodCo. Michael James will lead Petrol, small stores, convenience and Thomas Dux as Director, Woolworths Small Stores.

Lean Retail Model to drive three-year growth plans

Woolworths said its three year growth strategy would be based on a new ‘Lean Retail’ operating model.

Woolworths said the Lean Retail model would deliver more than $500 million of cost reduction across FY15-16, which would enable “investment in improving all aspects of the customer experience including lower prices, better convenience, improved service and access, and a commitment to innovation”.

Woolworths Limited CEO, Grant O’Brien, said the entire team was committed to doing what it takes to maintain and improve its position as Australia’s leading retailer.

“Woolworths is a strong business with lots of growth potential, and we are absolutely aware of the challenges we face to realise that potential,” Mr O’Brien said.

Lean Retail model to fund investment in the customer offer

Mr O’Brien said the Lean Retail model “builds on our historical approach of driving growth via seeking efficiency and investing in our customers but with a clear recognition that the approach needs to be tailored to a modern era”.

Woolworths’ investment in the customer offer will be funded through a significant and ongoing focus on cost management within its non customer facing operations.

“Price is of course a key driver, and we will invest in ensuring we will not be beaten on price, but our customers also now expect greater use of technology and innovative offers to make their shopping easier and more enjoyable,” Mr O’Brien said.

“We started to identify savings in July 2014 from our non customer-facing operations,” Mr O’Brien said. “We have reduced our non-customer facing employee roles by around 400 full-time positions and found major areas of efficiency in our supply chain and back-office processes,” he said.

Mr O’Brien said Woolworths would reduce further non-customer facing roles by a further 400 positions by the end of H1-FY16 as it continue to identify process improvements.

Six challenges identified

Mr O’Brien said he would drive a relentless focus among his leadership team on the following core areas of execution:

1. Regaining momentum in Australian Food – Brad Banducci has developed clear plans to build customer trust and regain and sustain sales momentum in Australian Food by focusing on initiatives to have the customer put Woolworths first and investing in improving all aspects of its offer.
2. Continuing to deliver Liquor growth – Mr O’Brien said the Woolworths Liquor division was “the clear market leader” and it was determined to extend that lead by providing “innovative offers for every occasion” via its store and multi-channel networks. Mr O’Brien said Woolworths was well positioned to grow despite of the low-growth Liquor market.
3. Making clear progress on Masters’ path to profitability – Mr O’Brien said Woolworths would focus on landing its new range and store format. He said customers were responding well to both and Woolworths continued to see long-term growth opportunities in this fragmented market.
4. Accelerating the reset of BIG W – Mr O’Brien said BIG W was progressing in its transformation and has a clear plan to capitalise on its strong place in the discount department store market.
5. Accelerating its lean retail model to compete in a new environment – Mr O’Brien said Woolworths was building a low-cost foundation to give it options to serve all customer segments via a multi-channel approach. He said Woolworths has set up a central cost-out program called ‘Fuel for Growth’ to realise cost saving initiatives in non customer-facing areas and deliver benefits, which will be reinvested in lowering prices and improving all aspects of the customer experience.
6. Maintaining disciplined portfolio management and capital allocation – Mr O’Brien said a disciplined approach to capital allocation would underpin Woolworths’ growth plans, with increased capital being directed to Australian Food and a strong focus on working capital management.

‘Key Enablers’ drive competitive advantages

Mr O’Brien said Woolworths’ business structure was a “real strategic advantage” underpinning its ability to deliver all the priorities outlined in the announcement.

“We have a series of key enablers stretching across our five business divisions which will drive efficiency and productivity saving to use as fuel for our future growth,” Mr O’Brien said.

“Our retail portfolio affords Woolworths productivity and growth opportunities that are not available to our competitors, through cross-business scale and scope, logistics and customer service platforms, and sharing of innovation and best practice across divisions,” Mr O’Brien said.

Mr O’Brien said Woolworths would harness its 3,699 stores to “add convenience and flexiblity” for its online customers. He said Woolworths was also building a set of cross-business supply chains and integrated merchandising systems to “create competitive advantage for all businesses and a platform for growth under Mercury 2”.

“Woolworths is leveraging unique data assets to drive new insights and competitive advantage not available to other retailers,” Mr O’Brien said. “Ultimately this will drive our focus on the customer by making all decisions across the business starting from the customer perspective, using data on their actual needs and behaviour rather than surveys and stated behaviour,” he said.