THE DISTILLERY: Woolworths weigh-in

Scribes say Woolworths is catching up to Coles, with one noting that careful differentiation is key.

Woolworths chief executive Grant O’Brien hasn’t caught Wesfarmers counterpart Richard Goyder, not by a long shot. But Australia’s business commentators are pretty complimentary of the retail executive’s achievements just 18 months into a gig he took up amid a rapidly rebounding rival and shifting landscape in Australian retail.

Fairfax’s Elizabeth Knight says O’Brien might deny that the primary focus at Woolworths is to compete with Coles and that the managerial priority is to look internal, at the end of the day the sales numbers against its greatest rival are what matters.

"No matter which way you spin it, the numbers don't lie. In the food and liquor area (and measuring like-for-like stores) Coles grew sales in the three months to December by 3.9 per cent and Woolworths by 2.5 per cent. The gap between the two may be a bit slimmer when the profit numbers come in, but right now Coles has maintained the lead it established in first quarter of 2010 – which was about a year after Wesfarmers bought the retail conglomerate which also contains Kmart, Target, and Officeworks.”

Knight writes that the narrowing lead that Coles has over Woolworths isn’t quite enough to declare that Australia’s largest retailer is well established in its comeback, but the review was pretty good for O’Brien.

Business Spectator’s Stephen Bartholomeusz recalls that O’Brien was never going to overhaul the company’s winning formula, but simply improve its execution.

"It is also the case that under O’Brien Woolworths has changed its tactics. Where previously Woolworths had been continuously wrong-footed by Coles’ creative and aggressive promotions, O’Brien made it clear from the outset that he was committed to being less reactive and differentiating his offer. That change of strategy played out in the half. In the first quarter Coles used fuel discounts to mount a very aggressive promotion. Instead of copying Coles, Woolworths devoted its efforts to in-store price promotions. That impacted its fuel sales (petrol sales were down 2.8 per cent in the half) but helped narrow the relative growth rates in comparable stores sales, where Coles had established and maintained a significant lead once Ian McLeod and his team were up and running. That reduced gap in relative growth rates, about 1.4 percentage points, was held steady through the half, validating the shift in tactics.”

The Australian’s Blair Speedy takes us through the variations in the fuel-discount incentive that the big supermarkets are throwing at customers. Coles is going for an 8 cents a litre discount for customers spending over $30, which may as well be everyone. Woolworths is trying to entice shoppers to spend big with a slightly superior 10 cents a litre discount, but for customers that spend over $100.

And Fairfax’s Eli Greenblat writes that O’Brien also came to the fore at the beginning of a shift in Australian consumer thinking.

"While some in the press and Canberra might attack Woolworths and Coles for being a supermarket duopoly, recent results from both companies and the performance of newer players shows Australians are willing and eager to experiment with new retailers here and overseas via the web, and new supermarket entrants such as Aldi and to a smaller extent Costco. It’s a different landscape to what other Woolworths bosses have faced over the decades.”

Still in company news, The Australian’s Bryan Frith notices that Chinese private equity player Cathay Fortune is sending out mixed signals in its bid for copper producer Discovery Metals.

The Australian Financial Review’s Matthew Stevens reports that the first deadline of the Asciano-NSW coal drivers stand-off expired last night.

Meanwhile, AFR’s Chanticleer columnist Tony Boyd argues that Pharmaxis, smashed after an effective FDA rejection of its cystic fibrosis drug, could easily become a takeover target.

Fairfax’s Michael West renews his campaign against the practise of gold plating our electricity infrastructure. And finally, West’s colleague Michael Pascoe says we should expect whoever wins the next election to grab a bit more money out of superannuation.


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