‘We have got a lot of work to do’: Woolworths ‘out-traded’ as it trails Coles

Outgoing Woolworths chief executive Brad Banducci has cited ongoing cost-of-living pressures such as higher rent and utilities, the absence of a collectibles program and bad press as the reasons behind an underwhelming third quarter for the supermarket giant.

Australia’s biggest supermarket’s group sales lifted 2.8 per cent to $16.8 billion in the first three months of the year, with retail food sales growth at 1.5 per cent compared with the same period last year. That figure lags well behind Coles’ equivalent figure of 5.1 per cent.

Woolworths chief executive Brad Banducci fronted the Senate inquiry into supermarket prices last month.

“We realise we have got a lot of work to do on the shape of the value we deliver to customers,” Banducci told reporters on Thursday.

“Consumers are under pressure in this country. We have a role in helping them.”

Investors appeared unimpressed with the update, sending Woolworths’ share price down 4.6 per cent in late morning trading. Coles’ share price is down 1.7 per cent.

Inflation in Woolworths’ business declined by 0.2 per cent, a significant fall from the 5.8 per cent increase this time last year, with fruit and vegetables showing the greatest deflation of 6.2 per cent thanks to improved availability. Average meat prices fell by 9 per cent as lower input costs were passed on to consumers.

Sales of Woolworths’ exclusively owned brands grew 2.3 per cent, compared with Coles’ 8.8 per cent growth as the rival supermarket expands its private label range to bridge the price gap with the likes of Aldi. However, Banducci said the business was receiving feedback from customers that the supermarket’s private brands were delivering “outstanding value”.

“In the market, we’re not uncomfortable with where we are on own-brand. We’ve got more work to do to drive innovation and excitement and availability there, but we aren’t really uncomfortable with where we are in the setting and the role that our brands play to deliver value for our customers.”

Banducci said the supermarket could improve on communicating its value to customers, but said he would like to “see a more balanced narrative in the community”.

“One of the key things we can do better is communicating unit prices,” he said. “A lot of the media right now is not helping that narrative right now, quite frankly.”

Online shopping sales grew in the third quarter by 18.4 per cent to $1.6 billion compared with Coles’ growth of 34.9 per cent.

Woolworths’ quarterly figures have fallen behind those of Coles again.

In other parts of the business, Big W sales fell by 4.1 per cent to $1 billion as lower-income households shop at the discount department store on a needs basis and are pulling back most significantly on clothing and homewares. For instance, Lego sets under $20 now account for half of all Lego sales rather than a third, and customers are pivoting away from higher-priced vacuum cleaners for cheaper alternatives.

“Budget customers have unsurprisingly been impacted the most with increased trading down to cheaper items, deferring purchases or not purchasing at all,” Banducci said.

The supermarket said that customers who were most exposed to higher housing costs – such as mortgaged families, young singles, or families who rent – were the most focused on buying groceries on promotion, comparing prices and making the most of loyalty programs.

Banducci was forced to defend the supermarket in a call with investors and analysts who grilled him on the supermarket’s execution against Coles’ strong performance and about its value proposition for customers as Australians increasingly shop across various supermarkets and retailers to save money.

“We were out-traded in the quarter. Let me just own that,” he told analysts.

“We are where we need to be on price.”

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