Woolies urges rivals to back supply code

Woolworths chief executive Grant O'Brien has joined forces with Wesfarmers managing director Richard Goyder in urging rivals Aldi, Costco and IGA to sign the landmark grocery code of conduct with suppliers.

Echoing comments by Mr Goyder last week, Mr O'Brien said on Tuesday there was "no logical reason" for Aldi, Costco and Metcash's IGA chain to exempt themselves from the code, even though it was voluntary. "It's now time for Aldi, Costco and IGA to join the conversation," he told shareholders at Woolworths' annual meeting.

"In terms of the wider competition debate, all stakeholders would be well minded to keep what's best for customers at the forefront of their minds."

Aldi, Costco and Metcash have so far shown no inclination to join Woolworths and Coles in signing the code of conduct, which was finalised last week after 14 months of negotiations with the Australian Food and Grocery Council.

Metcash has indicated the code is irrelevant to its business as a wholesaler, while Aldi and Costco have highlighted their good relationships with suppliers, saying the code is a matter for the two major chains.

Mr O'Brien said the code established a clear set of principles around trading relationships between retailers and suppliers, and would provide greater certainty and clarity without adding complexity or cost.

"In my view, the code will work because it is industry-owned. It will not add red tape or stifle competition. In this context, its voluntary nature should be seen as its strength. Self-regulation will always be preferable to government intervention."

Mr O'Brien and chairman Ralph Waters also defended the sale of the Dick Smith consumer electronics business and the losses incurred by its fledgling home improvement business.

Mr Waters urged investors to be patient about home improvement, which lost $139 million in 2013 and is forecast to make similar losses this year before breaking even in 2016.

He said Woolworths and its partner Lowe's were building the business from scratch, rather than spending hundreds of millions of dollars buying an existing business. "If we bought an existing business, we'd have paid hundreds of millions of dollars in goodwill. The cumulative losses of the first few years represent the goodwill we'd have otherwise paid."

Mr Waters said that with competition regulators clamping down on Woolworths' growth in food and liquor markets, the retailer needed to pursue growth in new markets.

The home improvement market was worth $42 billion a year, and market leader Bunnings accounted for only 16 per cent of the market.

"I'd urge you to have patience and confidence in our past record," Mr Waters said. "In five years' time we'll have a decent-sized business."

Woolworths has also been accused of short-changing investors of about $400 million by selling Dick Smith for $94 million to private equity firm Anchorage Capital Partners, which stands to make a four-fold return on its investment in a $520 million initial public offer.

Mr Waters said Dick Smith was a non-core business for Woolworths and was better off in new hands. "We made a clear decision and we made the quickest and cleanest exit we could."

If Woolworths had known that the Australian dollar was going to fall from about $US1.05 to US92¢ - reducing the impact of deflation - it might have had second thoughts.

Woolworths also announced the resignation of finance director Tom Pockett, who plans to step down in February and retire from the board in July. He will be succeeded by general manager corporate finance David Marr, a former Tesco executive who has been groomed for the role over the past two years.

Mr Pockett, 55, is one of Woolworths' longest-serving executives, having joined the retailer in August 2002 as chief financial officer after earlier roles at the Commonwealth Bank, Lend Lease and Deloitte.

"I've been thinking about moving on to do other things outside Woolworths for ... over 12 months now," Mr Pockett said. "With the change in the chairman and the chief executive, it is a natural time to move on."