Daily BulletinDaily Bulletin

The Conversation

  • Written by The Conversation Contributor
imageThe next Woolworths AGM will be a challenging one for the board.Dan Peled/AAP

Woolworths shareholders have had a torrid couple of years. The company’s market capitalisation is down around a third since mid-2014 – quite a hit for a company once worth almost A$50 billion dollars. Today it forecast a 35% fall in half-year profit, sending its shares plunging by more than 9%.

The disastrous Masters foray is partly to blame. Conceived in oligopolitical hubris, Masters has been an unmitigated disaster for Woolworths shareholders. They were right to expect far better from the company’s exceedingly well-remunerated board and senior executives. The fact that Masters has ended quite a few careers is cold comfort for shareholders who have lost hard earned savings and superannuation.

Today’s results open a new chapter of woe. Once, Masters was seen as an unfortunate sideshow, able to be separated from the Goliathan strength of Woolies’ grocery cash machine. Today, the illusory nature of that misapprehension has emerged – with sales in decline year-on-year for like stores, and a flagged collapse of earnings by up to a third and, most tellingly, no end in sight.

While the problems of the last 18 months at Woolworths have often been ascribed to the Masters debacle, analysts have long been worried about the main game in groceries. Aldi, the privately-held German multinational, has been playing a cautious and patient long game.

Aldi’s “value proposition” to consumers is starkly different to both Woolworths and Coles, and it’s clear Australians have warmed to what Aldi has to offer – a narrow range of good quality products at prices equivalent to the majors’ “specials”. The narrow range and small format stores have the additional benefit of quick and easy shopping for busy consumers. Woolworths has been losing market share quickly.

Its response has so far been too little and too late. Woolworths has tried to “shoehorn” an Aldi equivalent into the lower shelves of its large format stores. It suggests to consumers that they can get a basket of goods similar to Aldi’s at the same price within their stores if they look hard enough. In this regard – to paraphrase the late, great Z.Z. Hill - what Woolies are selling, Australians ain’t buying.

The limited success of this “Aldification” of Woolworths stores has, however, done damage to Woolworths' core business of groceries. Whenever consumers choose the low cost goods within Woolworths, it is at the expense of the higher margin goods they also have for sale. This is evidenced by the steep decline in margins reported today – with sales in slight decline (2.5%) and projected earnings in free fall (28 to 35%). Woolworths is learning the hard way that while revenues are easy to lose, the same can’t be said for the fixed costs involved in running a national retailer.

In the background, again, lies Masters. Its disastrous drain on revenues has meant Woolworths has had little to invest in new stores elsewhere. While Woolworths has opened six new stores during the quarter, Aldi has flagged the opening of up to 80 new stores during 2016, on top of the 80 it opened this year. Its expansion is uncannily like a German train timetable and its geographical spread means most of these new stores will not cannibalise existing sales – something Woolworths can rarely achieve.

John Rice is a member of the ALP and the NTEU.

Nigel Martin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Authors: The Conversation Contributor

Read more http://theconversation.com/the-aldification-of-woolworths-is-destroying-its-value-48885

Asylum or economic opportunity? The mixed messages in Australia's new Hong Kong visa options

arrow_forward

How to Choose a Reliable Long Distance Moving Company

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Prime Minister Interview with Ben Fordham, 2GB

FORDHAM: Thank you very much for talking to us. I know it's a difficult day for all of those Qantas workers. Look, they want to know in the short term, are you going to extend JobKeeper?   PRI...

Scott Morrison - avatar Scott Morrison

Prime Minister Scott Morrison interview with Neil Mitchell

NEIL MITCHELL: Prime minister, good morning.    PRIME MINISTER: Good morning, how are you?   MICHELL: I’m okay, a bit to get to I apologise, we haven't spoken for a while and I want to get t...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Ben Fordham

PRIME MINISTER: I've always found that this issue on funerals has been the hardest decision that was taken and the most heartbreaking and of all the letters and, you know, there's been over 100...

Scott Morrison - avatar Scott Morrison

Business News

Understanding Your NextGen EHR System and Features

NextGen EHR (Electronic Health Records) systems can be rather confusing. However, they can offer the most powerful features and provide some of the most powerful solutions for your business’s EHR ne...

Rebecca Stuart - avatar Rebecca Stuart

SEO In A Time of COVID-19: A Life-Saver

The coronavirus pandemic has brought about a lot of uncertainty for everyone across the world. It has had one of the most devastating impacts on the day-to-day lives of many including business o...

a Guest Writer - avatar a Guest Writer

5 Ways Risk Management Software Can Help Your Business

No business is averse to risks. Nobody can predict the future or even plan what direction a business is going to take with 100% accuracy. For this reason, to avoid issues or minimise risks, some for...

News Company - avatar News Company



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion