Woolies initiatives good for suppliers

Amid accusations of bullying suppliers, Woolworths CEO Grant O'Brien argues profits realised from its strategy benefit everyone

Woolies initiatives good for suppliers
Woolies initiatives good for suppliers

By Anna Game-Lopata | March 1, 2013

Amid criticism for squeezing suppliers’ margins to bring about cost reductions for customers, currently the subject of an Australian Competition and Consumer Commission investigation,
Woolworths Chief Executive Officer Grant O'Brien
asserts the retailer’s success is of benefit to all.

"We are closer to our customers than ever before and our deep understanding of their needs and drivers will help us
continue to achieve the win/win outcome for customers, suppliers and shareholders," he says.

O'Brien says much of the benefit received from
initiatives at Woolworths have been reinvested in price reductions for the value conscious customer.

"We have grown both sales and profits by pursuing a customer led strategy," he says.

Petrol sales were the only weak link in the retail giant's half year results, falling 1.2 percent on the previous half to $3.4 billion.

Meanwhile food and liquor, home improvement and Big W outlets, all undergoing similar
initiatives increased sales, profit and margins.

The Woolworths Group enjoyed an overall net profit of 1,154.8 million, up 19.4 percent on last year, and well above the company’s previous prediction of between 3 and 6 percent.

Sales were up 4.8 percent to $30.0 billion and earnings before interest and tax was up 19.1 percent to $1,840.7

Australian Food and Liquor sales for the half year were $20.5 billion, an increase of $0.9 billion or 4.7 percent. There was a strong increase in profitability at Big W, with sales for the half year
jumping 3.6 percent to $2.4 billion.

Gross margin as a percentage of sales for continuing operations also
increased by
62 basis points.

According to
O’Brien the margin increase reflects supply chain improvements in buying, including benefits gained from direct global sourcing expansion, efficiency improvements from the operation of new distribution centres (DCs)
and changes in the company’s sales mix.

There has also been a significant focus on reducing shrinkage, more effective promotions and growth in Woolworths’ range of brands.

Woolworths is also making gains with its ‘Category Lab’, which converts ‘Everyday Rewards’ data into customer insights.

"These help our category managers design our ranges, layout, pricing and tailored promotions to best meet our customer needs," he says.

"Such strategic initiatives, which are providing a platform for the future success of Woolworths, continue to generate enhanced returns for shareholders."

Along with Woolworths’ strengthened fresh food offering, O’Brien points to an improved performance from packaged goods with progress in aligning the program with supply partners.

"We remain focused on building further momentum in this area to achieve the results we are targeting," O’Brien says.


Key supply chain initiatives touching supermarkets, Big W and the company’s two new improvement stores, Masters and Danks, include recently commissioned distribution centres (DCs) at Hoxton Park (NSW), Christchurch (NZ) and Launceston (Tasmania).

"Our state of the art Hoxton Park DC, which commenced operations in FY12, has driven significant efficiency improvements in our BIG W business," O’Brien says.

"In October 2012, this DC also commenced supporting our Home Improvement business.

"We are now focused on the evolution of supply chain and replenishment improvements across our business."


Closing inventory days for continuing operations were up
two days on the previous half to 38.8 days, however O’Brien says the increase is a result of building inventory in Woolworths’ Home Improvement business which performed well as a result.

Home Improvement sales increased 54.6 percent to $637 million for the half year, a result which includes sales from the first 25 Masters stores, ten of which opened during the half.

"While still early days for our Masters business, we continue to be pleased by the progress of our stores," O’Brien says.

The Danks business experienced a more challenging half with much of this business focused on servicing trade customers where sales were impacted by a dampened demand for building and construction materials.

Excluding Home Improvement and incremental foreign sourced inventory, closing inventory decreased 0.8 days when compared to HY12.

"In light of the number of new stores and additional DC infrastructure across the group, this is a pleasing result which reflects ongoing improvements in stock management," O’Brien says.

"Cost management in our trading divisions during the half was excellent and is evidence of the productivity programs delivering cost leadership throughout the Group.


Woolworths enjoyed a 40 percent increase in total online sales from continuing operations for the half year.
"Transactional mobile sites are now actively used for all our brands," O’Brien says.

"Downloads of our mobile applications continue to increase with over 2.8 million apps downloaded across our businesses."

O’Brien adds a click and collect service is now available in all Dan Murphy’s stores nationwide – a first for a major Australian national retailer.

"The click and collect service is also available in all Masters stores and is being rolled out progressively in our Woolworths and Countdown Supermarkets," O’Brien says.

"Penetration of each of our online businesses is rapidly growing. We are focused on increasing our online capabilities."

Woolworths opened opened 17 Australian supermarkets during the half year bringing the total to 887.

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