This morning Woolworths announced an expected profit surge of 25% on the tail of a 12.6% increase in sales. Supermarkets (+12.5%) Big W (+11.1%) and hotels (+21.4) all experienced strong sales growth for the year.
Few will be surprised by the excellent result. It’s further evidence of how far Coles has slipped behind, struggling with poor strategy and poorer execution, iced more recently with slaughtered morale and distracted key managers unsure about the road ahead.
Woolworths brought their results announcement forward yesterday. Was this a bit of mischief, designed to put downward pressure on the Coles and Wesfarmers share prices in the hope of derailing the deal? Woolworths has not given up on Target and Officeworks, having asked the ACCC to complete its inquiries and determine their attitude.
The Mexican wave at Coles HQ and the dancing in the aisles at stores that greeted the news of the Wesfarmers deal are early signs of positive change. The party might be starting at Coles, and about to end for their competitors.
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Metcash is the third player in the grocery sector, supplying 2,500 independent supermarkets including IGA, Campbell’s Cash & Carry and FoodWorks. They announced a similarly strong result last month including 18% sales and 39% EBIT lifts, also riding on the Coles wave. Surprising the market, Metcash reduced its earnings guidance for the next year, believing that an end to the Coles turmoil will soon make life tougher in the grocery sector. Metcash believe that competition will inevitably get hotter as soon as Coles lifts its game under new ownership and leadership.
To Coles, Woolworths has become taillights vanishing in the distance. However, retailing, and grocery retailing in particular is a highly labile sector. Not too many years ago, the positions of Coles and Woolworths were reversed.
Other trends may come into play. In North America and Europe, while the grocery leviathans still dominate, there is a growing sector of the market that prefers tightly held, generally family run, and smaller businesses like Wegmans.
These retailers operate with a limited geographical spread and offer a different shopping experience. They tend toward deli, have a superior fresh offer and often include larger ranges of value added semi-prepared meals. They also offer greater customer intimacy and a very different experience. We are starting to see these offers here at Macro Wholefoods, Leo’s and the newer FoodWorks stores.
This is what makes retail fun. Perfection doesn’t exist and the industry lives in a state of perpetual reinvention.
Disclosure: I own 200 Metcash shares, my wife owns 768 Coles shares and my company Orex has recruited management for Bunnings and Macro.
Rob Lake publishes Brandish – Retail Intelligence, a fortnightly newsletter and website about things retail.