Supermarket history cycle begins again
There has certainly been plenty of comment around about the poor performance of Woolies, and the various reasons for it, and generally the Masters debacle gets the blame.
Let’s have some context.
Bricks and mortar retail is a high fixed cost, low margin business requiring volume sales with fast stock turn to be profitable. The difference between success and failure is in the details.
Woolworths was the master of the detail, maximising the consumer basket size and numbers while minimising variable and transaction costs.
30 years ago Theo Kelly ran the joint slowly into the ground from a previously dominant position, and Coles became the dominant force. Woolies was rescued by Paul Simons. Stores were a mess, staff unmotivated and directionless, and consumers were leaving in droves. Simons ran Woolworths for customers, from the shop floor, and it worked.
Then followed a period of Woolworths renewal, and outright dominance facilitated by turmoil at Coles (having an MD jailed for fraud is a tough hurdle) mergers and takeovers of the second ranking retailers, and the competitive decline of the wholesalers supplying the independents.
Reg Clairs drove and presided over a period of enormous success, a success that subsequent leaders were able to turn into a decade of superior returns. Then complacency crept back in, and Coles got a reprieve from Wesfarmers, who seemingly bet the farm on a successful turnaround against all the odds, and have done extraordinarily well.
Woolies returns to shareholders over the past decade have been about the best in the world of retail. Looking objectively, the current poor performance is a return to the levels of profitability that around the world is seen as reasonably successful. It is just that they are not what they were getting a few years ago, so investors are unhappy.
For Coles, their “big box’ operations, Officeworks and Bunnings, saved the day. Woolworths should have understood the drivers of success of these operations, as they managed to make Dan Murphy’s a significant success. However, they ignored the lessons of Murphy’s, and failed to learn from the competitive history in the hardware segment.
I clearly remember Reg Clairs recounting the challenges Mitre 10, the original box hardware retailer, faced as Bunnings growth was accelerating, several years before they sold. Woolworths should have learned from observing that failure, when a decade later they looked at the returns Bunnings was delivering Westfarmers, and decided to launch Masters.
As much as anything this is a strategic failure, not a management one. The most recent MD, Grant O’Brien may carry the can, but is he really to blame for the failure of strategy and lack of any institutional memory?
I have been around a long time in this space, wrestling with the parade of retailers. The common factor of those that have had success, even if transient has been a real grassroots retailing management who got down in the weeds of the individual stores, really got their hands dirty. In the “old days” Woolworths, and Coles, had a “federated” management structure, which although inefficient in today’s world gave them a very deep management bench of potential leaders who not just understood retailing at its grassroots, but lived and breathed it.
Coles revival has been led by such grass roots retailers, while Woolies overlooked Greg Foran for Grant O’Brien, and Greg has gone on to lead Wal Mart.
Hopefully Woolworths will regain their mojo, I am pretty sure they will, but the challenge is also one of expectations. Change happens slowly, measured in tiny increments over numbers of years. The almost full circle that has been run has taken almost 40 years, so listening to the brokers and the so-called experts with limited experience beyond reading reports, and to whom long term planning is what they are doing after lunch, is not always so instructive.
Allen Roberts is a guest contributor to Australian Food News and writes another of his regular articles here. He is the Director of Strategy Audit www.strategyaudit.com.au and has worked in the food sector for more than 35 years. To read his full biography click HERE.
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