From “phantom brands” to fancy undies, Woolworths is leveraging customers’ obsession with quality as it claws its way back into the supermarket wars.
On Friday the retailer’s first quarter sales figures hit above analyst’s expectations, with some saying the fight was back on with rival Coles. Comparable sales were up 0.7% for the quarter, which was a pleasant surprise to the market even though Coles reported its own comparable sales growth of 1.7% for the quarter.
The message from chief executive Brad Banducci seems to be one of taking slow steps.
“We are just seeing very small, gradual improvements in our business, week by week,” he told analysts last week.
“While we are pleased with our progress, there remains much more to do,” Banducci said.
Recent moves by the retail group have focused on customer satisfaction and in particular a belief that shoppers want access to “quality” products with a higher brand value than what has previously been on offer.
The recent rebranding of the retailer’s private label lines by removing prominent “Woolworths” signatures has been seen by retail analysts as an attempt to capture a customer base that want the feeling of a mid-range product without the higher price tag.
Earlier this month the supermarket also announced an exclusive product deal with lingerie brand Bendon, with a new range of products from imprints like Lovable and HEIDI by Heidi Klum to sit beside Woolies’ private label underwear offerings.
The brand partnership came about through the retailer’s annual product segment review process, with Woolworths category manager for apparel and footwear Samantha Hewlett telling SmartCompany the retailer is working towards a “refreshed” range.
“We’re always looking for newness at Woolworths,” Hewlett says.
The retailer was aware that “internationally, customers can pick up underwear and apparel in the supermarket segment”, and there was appeal in mimicking that approach.
“It’s nice to have something a bit interesting as you do your supermarket shop,” Hewlett says.
“Our customers are asking for it – convenience is the biggest thing – residual basket spend is moving up,” she says, with Woolworths’ underwear, socks and baby categories all increasing sales.
Woolworths has not indicated whether this is the start of a broader move into different clothing lines, but management will soon have a clear picture of what the underwear project is delivering to sales.
“We start to track [sales] within 12 weeks,” Hewlett says.
The road back for Woolies
It’s been a big year for the fresh food retailer. Banducci was appointed chief executive in February, turnaround plans were put in place, the decision was made to exit Masters Home Improvement and one look at social media indicates customers have been on a roller-coaster of emotion as the supermarket’s loyalty programs have been chopped and changed.
There’s also some weakness in discount department store Big W, where first quarter sales dropped 5.5% – something management say was affected by “the cold start to spring”.
There’s a multi-year Big W strategic plan in place, which involves “clearing excess inventory” and developing a new online site. Meanwhile, Wesfarmers’ Target is experiencing similar problems, with quarterly sales figures down 17.1% for the previous corresponding period.
The two supermarket giants might be facing issues with their discount lifestyle store offerings, but the everyday supermarket shop is the real battleground. For Woolworths, this means drawing shoppers out of Coles supermarkets and into their own stores to spend more.
Comparable transactions grew 2.5% for Woolworths across the first quarter. Over at Coles, while comparative grocery sales were up 1.7%, this is lower than over the past year; in the fourth quarter of 2016, sales grew by 2.9%, while they were up 4.9% in the third quarter of 2016.
Retail analysts have previously told SmartCompany retail is a game of habit and for Woolworths, building brand loyalty comes down to customers’ associations with product brands.
“Shoppers won’t look at the fine print. Grocery shopping is low involvement, habitual, and routine. They will only be looking at the brand and the price,” associate professor at QUT Business School, Gary Mortimer, said last week.
Woolworths will have one less moving part at year’s end when Masters stores shut for good. The sale of Home Timber and Hardware to Metcash was also completed at the start of October and with the hardware chapter soon to close, the business can spend even more time focused on basket spend.
“Our trading performance over the key Christmas trading period is crucial to the financial performance,” Banducci said.