Woolies have been in the news again in recent weeks due to its profits being announced to shareholders. Shareholders have a right to be disappointed with the group because they have taken a hit. As a result the chain has dedicated itself to improving its offerings to customers.
This commitment was backed by the brands decision to pump $500 million into slashing prices on its products and improving its stores to try and increase sales and profits. As a result, this huge investment by Woolies will very likely trigger a competing investment from competitor Coles. What we need to be asking ourselves then is how likely are we to benefit from all this?
Grant O’Brien, the chief executive of Woolworths selected choice words to describe the direction that Woolies would be taking; citing a “review of performance” within stores and “disciplined investment in value for customers.” This comes as the supermarket forecast full year profit growth rates ranging between 4% and 7%. However, since the dismal performance of the supermarket in its first quarter, its forecast has now dropped to between 1.8% and 6%.
These figures are based on its first quarter profits having fallen by 3.1% to $1.28 billion. The decreased performance was partially related to their attempts in trying to turn around Big W. As a result, O’Brien commented “A strategic review of Australian supermarkets performance confirmed the considerable opportunities for performance improvement, future growth and the need for continued disciplined investment in value for customers to maintain our supermarket leadership and drive sales momentum.”
You may be one of the happy customers to gladly welcome their new ‘Cheap Cheap’ campaign, yet the store openly admits to not investing enough into its in-store service during the critical Christmas period or realising a good return from the campaign. Their drop in profits may not seem like the end of the world, especially as there are numerous people struggling with their bottom line across the country, as one could argue that figures in the billions, no matter the figure, should be ample.
Yet, Coles on the other side of the battleground have been racking up profit figures within the same 2014/15 financial year of 4.2%. This puts Woolies in a difficult position with its shareholders. The hope with their $500 million investment is that it will drastically improve their customer offerings and trigger more aggressive competition from Coles, as Coles will have a vested interest maintaining their dominating profit margins. In my experience, when big brands battle it out, such as within my previous post about the Masters Vs Bunnings war, there are often many winners - most consisting of the us, the humble and happy consumer.