Woolworths pulls away
Interim sales figures from Woolworths have proven that the group can continue to outperform even in trying conditions, putting even more space between it and its newly invigorated competitors.
The Woolworths half-yearly sales numbers might reveal some marginal slowing of its sales momentum but confirm that the group is operating on a completely different plane to other retailers.
Total sales growth of 8.8 per cent for a food a discount retailer like Woolworths would be stellar in any environment, let alone the conditions through which it traded in the 27 weeks to January 4.
The gulf between its Australian food and liquor comparable stores sales growth of 6.6 per cent for the half and Coles' 2.6 per cent in the same period, underscores the continuing benefit of the virtuous cycle Woolworths has been on for the past decade.
Roger Corbett built the foundations and now Michael Luscombe seems to be quite seamlessly leveraging them to further entrench the group's dominance. Particularly striking was the 5.6 per cent comparable stores growth in the Big W discount chain for the half, where second quarter growth was 6.4 per cent. The Wesfarmers' brands, Target (4 per cent comparable stores sales growth) and Kmart (0.4 per cent) didn't fare as well.
In terms of the competition, of course, Woolworths is in something of a sweet spot. Wesfarmers has made it clear that the turnaround of the Coles brands, particularly the supermarkets, is a five-year exercise. It isn't wasting its time comparing its business's performance with Woolworths, but rather is focusing on simply improving it. If it loses share to Woolworths in the process, so be it.
Over the next four years, however, Wesfarmers will start pouring capital into refurbishing and repositioning its supermarkets.
It hasn't started the process yet. It says it has yet to choose its preferred new format, but the delays could also have something to do with the balance sheet issues Wesfarmers solved when it locked up at least $2.9 billion of new equity last week.
Now that it has the funds, the much-needed refurbishment of the capital-starved chain will get underway. If executed well, that should have some impact on the relative performance of the chains, although Luscombe is also investing aggressively in his own stores and from a much stronger financial and operational platform.
Nevertheless, with Coles now the focus of Wesfarmers' attention, and Aldi saying last week that it plans to eventually more than double its store network and market share by adding at least 30 stores a year to an existing network of more than 200, a lot of capital and effort is being thrown into competition with Woolworths.
Aldi will spend $500 million over three years on new distribution centres to service its expanding network, while Wesfarmers will plough billions into Coles.
The challenge for Luscombe is to use the period of Wesfarmers' attempts to stabilise and reinvigorate Coles' performance and put even more distance between his group and the rest.
Woolworths' strength is its ability to put pricing pressure on the entire sector, exploiting its superior scale and efficiency to benefit customers, drive sales growth and deliver shareholder returns. Its dominance is self-perpetuating, provided it retains focus and continues to be ruthless in exploiting its competitive advantages. There are no signs of any weakening in that regard.
The first half of this year will provide something of a test of Woolworths' apparent immunity to the external conditions.
The first half sales numbers do appear to have benefitted from the Rudd Government's $10.4 billion pre-Christmas stimulus package. Retail conditions this year are already deteriorating quite rapidly. Achieving Luscombe's sales growth guidance – "upper single digits" – won't be easy. Woolworths does, however, tend to deliver.
Total sales growth of 8.8 per cent for a food a discount retailer like Woolworths would be stellar in any environment, let alone the conditions through which it traded in the 27 weeks to January 4.
The gulf between its Australian food and liquor comparable stores sales growth of 6.6 per cent for the half and Coles' 2.6 per cent in the same period, underscores the continuing benefit of the virtuous cycle Woolworths has been on for the past decade.
Roger Corbett built the foundations and now Michael Luscombe seems to be quite seamlessly leveraging them to further entrench the group's dominance. Particularly striking was the 5.6 per cent comparable stores growth in the Big W discount chain for the half, where second quarter growth was 6.4 per cent. The Wesfarmers' brands, Target (4 per cent comparable stores sales growth) and Kmart (0.4 per cent) didn't fare as well.
In terms of the competition, of course, Woolworths is in something of a sweet spot. Wesfarmers has made it clear that the turnaround of the Coles brands, particularly the supermarkets, is a five-year exercise. It isn't wasting its time comparing its business's performance with Woolworths, but rather is focusing on simply improving it. If it loses share to Woolworths in the process, so be it.
Over the next four years, however, Wesfarmers will start pouring capital into refurbishing and repositioning its supermarkets.
It hasn't started the process yet. It says it has yet to choose its preferred new format, but the delays could also have something to do with the balance sheet issues Wesfarmers solved when it locked up at least $2.9 billion of new equity last week.
Now that it has the funds, the much-needed refurbishment of the capital-starved chain will get underway. If executed well, that should have some impact on the relative performance of the chains, although Luscombe is also investing aggressively in his own stores and from a much stronger financial and operational platform.
Nevertheless, with Coles now the focus of Wesfarmers' attention, and Aldi saying last week that it plans to eventually more than double its store network and market share by adding at least 30 stores a year to an existing network of more than 200, a lot of capital and effort is being thrown into competition with Woolworths.
Aldi will spend $500 million over three years on new distribution centres to service its expanding network, while Wesfarmers will plough billions into Coles.
The challenge for Luscombe is to use the period of Wesfarmers' attempts to stabilise and reinvigorate Coles' performance and put even more distance between his group and the rest.
Woolworths' strength is its ability to put pricing pressure on the entire sector, exploiting its superior scale and efficiency to benefit customers, drive sales growth and deliver shareholder returns. Its dominance is self-perpetuating, provided it retains focus and continues to be ruthless in exploiting its competitive advantages. There are no signs of any weakening in that regard.
The first half of this year will provide something of a test of Woolworths' apparent immunity to the external conditions.
The first half sales numbers do appear to have benefitted from the Rudd Government's $10.4 billion pre-Christmas stimulus package. Retail conditions this year are already deteriorating quite rapidly. Achieving Luscombe's sales growth guidance – "upper single digits" – won't be easy. Woolworths does, however, tend to deliver.
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