Big W woe drags on Woolworths’ rising food division

Woolworths WarringahWoolworths has unveiled a $1.53 billion full-year profit and lifted its crucial comparable food sales by 3.6 per cent per cent, suggesting heavy grocery discounting is pulling shoppers back to the supermarket giant.

Woolies has bounced back from last year’s writedown-heavy $1.23 billion loss as comparable supermarket food sales rose 6.4 per cent in the fourth quarter, outstripping fierce rival Coles for a third consecutive quarter.

Food sales increased by 4.5 per cent over the year with the fourth quarter the strongest at 7.2 per cent (Easter adjusted). EBIT for the year declined by 2.4 per cent but increased by 13 per cent in the second half of FY17.

Woolies said the improvement in sales and gross margin was partially offset by higher investment in price, service and team member incentives and training . Excluding incremental short-term incentives in FY17, EBIT increased by 8.3 per cent for the year.

Endeavour Drinks delivered sales growth of 4.3 per cent with EBIT growth of 3.9 per cent, with Dan Murphy’s online channel up 25 per cent.

“New Zealand Food sales were up 2.1 per cent, however EBIT decreased by 1.4 per cent for the year.

“Woolworths has divested underperforming assets, such as its hardware operations, to concentrate on offering low supermarket prices to consumers,’ said Nathan Cloutman, IBISWorld senior industry analyst.

“Australian consumers are becoming increasingly price conscious, particularly as discretionary income growth remains pinched, and an increasingly competitive supermarket industry is responding accordingly to these pressure.”

The company has also invested heavily in consumer data analytics through its $200 million stake in the Quantium Group. In addition, Woolworths has expanded its range of low-cost private-label products to drive consumers instore, which has been to the detriment of big brands such as Coca-Cola.

Woolworths’ resurgence has put pressure on rival Coles over the past year. Wesfarmers’ Coles division posted a revenue decline of 0.1 per cent over 2017-18. Coles’ comparable sales growth is also much lower than 2016-17, at 1.0 per cent.

“Rising price competition from Woolworths and the ongoing expansion of Aldi and Costco across the country have put pressure on Coles over the past year, with the company losing market share as a result.”

According to IBISWorld, the Supermarkets and Grocery Stores industry is expected to total $108 billion in 2017-18, with Woolworths estimated to account for 34 per cent, Coles 29 per cent, Aldi 10 per cent and the rest made up by smaller players such as IGA and Costco.


Big W continues to decline

But Woolworths’ discount department store Big W has continued to perform poorly, with a pre-tax earnings loss of $150.5 million and another 5.8 per cent fall in sales.

“Woolworth’s struggling Big W continued to maintain difficulties in establishing themselves in the highly competitive discount department stores market,” said Hianyang Chan, senior research analyst at Euromonitor International.

Chan said similarly to discount department store rival, Wesfarmers-owned Target, Big W is in the midst of a transformation plan by reviewing its strategy plan and customer value proposition in an attempt to remain competitive.

“Comparable sales remained in decline  and the retailer struggled to define itself and has fallen out of favour in recent years,” he said.

“The imminent entry of Amazon into Australia will post further threats to most major retailers and Big W will be no exception. It is expected that the parent company will aim to further strategise on how to better retain and expand their consumer base by better omni-channel offering, wider, better priced and a more localised product range, better customer service and most importantly, introducing a flexible, faster and cheaper same-day delivery service.”

The Woolworths board announced a final dividend of 50 cents per share taking the total dividend for the year to 84 cents, a 9.1 per cent increase on the prior year.

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