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Woolworths is Australia's biggest supermarket chain, having overtaken traditional rival Coles in 2006. The two companies compete fiercely in several sectors. Woolworths has the dominant position in the local grocery market, and also has interests in liquor retail and general merchandise through the BWS, Dan Murphy's and Big W chains. In 2011, Woolworths opened a new front with a move into home improvement, launching the Masters chain in partnership with Lowe's of the US. However, after several years of strong growth, the group's performance suddenly flagged alarmingly in 2015 following the adoption of a disastrous new marketing strategy. That led to the departure of several key personnel including the CEO, and also the closure of the Masters chain. Despite its name, Woolworths Australia has no connection to the old British or American Woolworths retail businesses.
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A dynamic growth strategy under the Project Refresh banner, as well as several key acquisitions, added substantially to Woolworths' strength in the 2000s. As a result, the group rapidly closed the gap with arch-rival Coles in the first half of the decade, finally overtaking its traditional competitor at the end of 2006. It has maintained its lead ever since, though that position has come under threat as a result of various stumbles since 2015.
Woolworths' greatest strength is in food and liquor, and its general merchandise division lags well behind Coles as well as other competitors. The group has traditionally positioned itself as a specialist in fresh produce, with a hugely successful ad campaign which presented the company as Australia's "fresh food people". As a result, it is generally considered to be the more "premium" of Australia's two main supermarket chains. Since 2014, though, Woolworths has been drawn into a price war with a rejuvenated Coles and fast-expanding discount store Aldi. That led to a shift away from the "fresh food people" branding (quickly stolen by Coles) to a new positioning as the "Cheap Cheap" supermarket. The new proposition was widely regarded in the media as an error, and led to the sudden departure of Woolworths' divisional managing director, its two top marketers and also group CEO Grant O'Brien.
The group's entire portfolio holds almost 3,000 stores in Australia and New Zealand. It is Australia's second largest private employer (behind Coles parent Wesfarmers). By far the biggest division within the group is supermarkets. In Australia, the business houses 960 outlets, now all trading under the Woolworths brand. (Some stores in Victoria operated under the Safeway banner several years after acquisition). It also offers several private label grocery and household goods brands including Delicious Nutritious, Homebrand, Select and Gold. In June 2016, researcher IBISWorld estimated Woolworths' share of the local groceries market at 34.2% (down from 40% a year earlier), ahead of Coles on 29.2% and Aldi at 7.9%.
Thomas Dux is a separate wholefoods and organic grocery retail chain launched in 2008, and that business was bolstered in 2009 through the acquisition of rival Macro Wholefoods market. The group also operates internet grocery service Woolworths HomeShop in Melbourne and Sydney. Despite fierce competition, especially from rival Coles, the group claims around 28% of the Australian food, liquor and grocery sector. (Coles has around 22%). In New Zealand the group has 178 supermarkets trading under the Countdown banner. In 2005 the group acquired the Action supermarkets in Australia and Foodland/Progressive of New Zealand. All stores were rebranded as Countdown.
Woolworths has also moved aggressively into the petrol service station sector, adding forecourt service to many of its larger stores under the Woolworths Petrol banner and offering discounts on fuel to shoppers spending more than A$30 on food or drink in the supermarket. In 2003 it agreed a joint venture with Caltex to merge the two group's convenience store/gas stations. The combined estate now covers almost 530 locations. At the end of 2016, BP agreed to buy that estate for almost A$1.8bn (US$1.3bn); the deal was later blocked by regulators.
Sales from Australian Food were flat in ye 2016 at A$34.8bn, but petrol sales slumped 18% to A$4.6bn. Combined EBIT from Food & Petrol plunged 41% to A$1.8bn. New Zealand food & liquor sales totaled A$5.6bn.
The group is also a major player in liquor retailing. In 2004, Woolworths launched a takeover bid for Australian Leisure & Hospitality, the country's Australia's third largest liquor retailer and its biggest pubs operator. Despite rival bids (including one from Coles Myer), the deal was completed at the end of the year. ALH Group operates as a separate division within the group with 330 licensed hotels and pubs. These accompanied by around 540 off-license retail outlets, which operate under the BWS (or Beer Wine Spirits) and Dan Murphy's brands. The group has added further outlets since then through several other small acquisitions. Together these now operate under the banner of Endeavour Drinks Group. Revenues were A$7.6bn in ye 2016 with EBIT of A$438m. The hotels (or pubs) business added another A$1.5bn.
Woolworth's General Merchandise division comprises discount department store Big W, with almost 185 locations nationwide. Sales dipped 3% in ye 2016 to A$3.82bn. A separate Australian consumer electronics retail business operating under the Dick Smith name was sold to private equity in 2013 but later filed for bankruptcy. In 2013 the group acquired online clothing and accessories retailer Ezibuy, but this business too was offloaded in 2016.
In August 2009, Woolworths established a joint venture with US home improvement giant Lowe's to open a chain of large-format DIY stores in Australia, a direct challenge to local market leader Bunnings, owned by Coles parent Wesfarmers. It has also established a supply chain for that business through the acquisition of several hardware distributors around the country. The first store opened towards the end of 2011 under the Masters brand. There were 58 outlets in operation by mid 2015, but trading was very tough with profits not expected until 2017 at the earliest. In January 2016, Woolworths announced plans to pull the plug on Masters, putting the business up for sale or closure. Revenues for Masters in ye 2016 were A$1.1bn, with losses of A$233m. There was an additional A$967m from Home Timber & Hardware, which reported a small profit. The latter business was sold on to rival Metcash, but all Masters outlets are to be shuttered by the end of 2016.
Woolworths Everyday Money is the group's financial services division, offering banking services and credit cards as as well as a variety of loyalty reward schemes for frequent shoppers. Woolworths Everyday Rewards is one of the country's largest such incentives marketing programmes with around 6m members. However, in another unaccountable marketing misstep, the group abandoned a long-established partnership with Qantas Airlines to redeeem points towards the end of 2015. Instead the group began offering cash discounts on a very small range of products under the banner of Woolworths Dollars. The switch resulted in a wave of complaints from customers.
The group was also until 2001 the publisher of Australian Good Taste, one of the country's leading lifestyle magazines. The title was sold that year although it continues to be distributed exclusively through Woolworths stores.
Total group sales for the year ending June 2013 rose 4% to A$59.16bn, including a part-year contribution from Dick Smith Electronics. Net profits jumped 24% to A$2.26bn. The previous year had included a charge against the anticipated sale of Dick Smith. More than 90% of revenues were generated in Australia, and the remainder in New Zealand.
For the year to June 2014, revenues grew by a further 3% to A$60.77bn, with net profit up almost 9% to A$2.45bn. However there was a sudden slowdown in the first quarter of 2015, with group revenues slipping almost 2%.
Revenues for the year to 2015 were down marginally to A$60.70bn. That decline was mainly the result of falling petrol prices; excluding fuel, revenues were up 2.5%. However, net profit slumped almost 13% to A$2.15bn, the first annual decline in profits for almost two decades. That figure included large exceptional items for restructuring and "business transformation".
All Woolworths' troubles were reflected in results for the year to 2016. Reported revenues of A$58.1bn were down 4% from the year before, and 1% on a continuing operations basis, but a 40% slump in earnings in the core grocery business and a huge A$3bn write-off against that disastrous move into home improvement resulted in a net loss of A$1.2bn. Excluding impairments and one-off charges, the group claimed a 36% fall in EBIT to A$2.56bn.
In the 1920s group founder Percy Christmas ran a successful fashion store in Sydney called Frock House. Mid decade, he broadened his range with a new variety store, borrowing the bargain prices concept pioneered by FW Woolworth in the US. The original name was to be Wallworths Bazaar, but at the last minute Christmas found that the Woolworths name was not copyrighted in Australia, so he took a chance on simply borrowing it. "Woolworths Stupendous Bargain Basement" opened in 1924, and for the next 30 years the group did well with its general store format. It wasn't until 1960 that Woolworths opened its first supermarket. It acquired women's clothing store Rockmans in 1961, and launched Big W discount warehouses in 1976.
The 1980s witnessed rapid expansion. In 1983 the group bought consumer electronics chain Dick Smith Electronics, followed two years later by the Australian subsidiary of US supermarket giant Safeway. The latter purchase stretched the group too far, and it reported losses of A$15m in 1986. In 1989 Woolworths was itself acquired by diversified conglomerate Industrial Equity, before being refocused and then spun off in 1993. In 1997, the group dipped a toe into fuel retail, opening its first Petrol Plus combined service station and convenience stores. Two years later, it followed the successful example of UK supermarket chain Tesco, launching a banking service for customers in partnership with Australia's Commonwealth Bank, under the name Woolworths Ezy Banking.
Also that year, the group launched Project Refresh, a 10-year restructuring program designed to close the gap with rival retail group Coles Myer. Woolworths focused on its core business and cut costs to boost profits. In 2000, it sold off its Rockmans clothing chain and added the Booze Bros liquor store chain to its portfolio. It also sold meat processing business Chisholm Manufacturing. A year later, the group sold its Crazy Prices discount chain, but acquired the Australian arm of Tandy Electronics from Canada-based Intertan, as well as 71 supermarkets from the former Hong Kong-owned Franklins chain. (A further 30 stores were acquired by Coles Myer). The group also acquired a 38% stake in internet grocery retailer GreenGrocer.com.au, later increased to 100%, and a 50% stake in MGW Hotels, which operated a chain of liquor stores, taverns and hotels in Queensland. In 2002, the group sold its chain of Woolworths supermarkets in New Zealand to Progressive Enterprises, the owner of rival grocers Foodtown and Countdown (before buying them back in 2006).
In 2004 Woolworths teamed up with Melbourne entrepreneur Bruce Mathieson to launch an unexpected takeover bid for Australian Leisure and Hospitality, the country's Australia's third largest liquor retailer and its biggest pubs operator, demerged earlier in the year from Foster's. The takeover quickly turned into a bidding battle between Woolworths and US venture capital group Newbridge, and became more complex still after Woolworths' arch-rival Coles Myer entered the bidding. Woolworths won the battle after raising its offer in November to around A$1.33bn.
Last full revision 4th July 2016
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