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Cape Town - Woolworths [JSE:WHL] does not have a monopoly on the premium food market in South Africa, but it is passionate about this sector and knows how to do it well, CEO Ian Moir told Fin24 on Thursday.
Moir was reacting to statements made on Wednesday by Shoprite group CEO Pieter Engelbrecht, who said at the Shoprite Group's results announcement on Wednesday, that the group is managing to "dismantle" what it sees as a "monopoly" in the premium food trade in SA. He did not, however, say what this monopoly was.
Engelbrecht said the group's Checkers business grew its upmarket share of the premium food segment in SA, but added that he has never said Checkers wants to "become Woolworths".
According to Moir the premium food market in SA is very competitive.
"Woolworths' whole business and ethos of quality are based on this sector and for the past five years we have been taking market share in that segment," he said.
Renier de Bruyn, an analyst at Sanlam Private Wealth, told Fin24 that Checkers is still growing from a very small base in the premium prepared food market, so it is too soon to see any meaningful impact on the Woolworths numbers.
"The tough consumer environment in SA had a negative impact on all discretionary retailers. Food retailers held up better over the last year and benefited from above average food inflation, which negatively impacted consumers’ remaining disposable income available for discretionary purchases," explained De Bruyn.
"The economy is expected to remain unsupportive in general for retailers over the next year, but lower food inflation and further potential interest rate cuts may start to bring some relief."
Woolworths announced its annual results for the financial year ended June 25 2017 on Thursday.
Moir reckons the future lies in the creation of amazing experiences for consumers and the combination of food and fashion. This is because retail is changing globally. Consumer behaviour is changing and online is changing the industry.
There is, therefore, a change in the type of competition retailers are facing. Customers are looking to interact differently with retailers. They want more personalised service. They want to tell retailers what they want, according to Moir.
"You have to invest in systems and processes and create a really differentiated offer and a great experience. If you do not invest in this now, it will be difficult to get through the change cycle successfully," he said.
Food business
Moir is pleased with the performance of Woolworths' food business in what he describes as a tough market.
"We will be able to hold our margin in the food business and grow our market share," he told Fin24.
He is especially pleased with the large number of new lines introduced during the financial year - both in the food and fashion business and emphasises the importance innovation has for the company.
Another highlight for Moir is the performance of Country Road - both in SA and in Australia - despite difficult market environments. The approach is now more design-led and new leadership has been introduced.
Moir is furthermore pleased with the positive reaction to the introduction of restaurants and café's at the top end of the market in stores in Australia - similar to what one finds in Woolworths in SA. In one Australian store the restaurant takes up a whole floor and since its opening traffic to the store has increased by 20%.
Lower food inflation
He is also pleased with the impact of lower food inflation in SA, leading to Woolworths volumes increasing and growth in the top buying sector.
"We are excited about that, because with lower prices people buy more," he explained.
Challenges
As for challenges, Moir said the company finds itself in the middle of an unbelievable economic and structural change in SA.
"The economic and political issues in SA have impacted our business - especially our clothing business. It impacts all retailers in SA. Yet, only one retailer managed to grow more than we did," said Moir.
He believes the ANC National Conference in December will be a watershed for the country.
Australia, on the other hand, offers challenges for different reasons.
Fashion
According to Moir, Woolworths is focused on building its fashion credibility with a segmented, brand-directed customer experience.
"The market is changing. People are more fashion-aware and demanding than they were before. At Woolworths we are quicker to market. We have a faster response time and are segmenting our offer," said Moir.
He is also pleased with the amount of local sourcing Woolworths has done for its fashion offering.
"We shift more than 30 million units per year from our SA supply base and this increase by about a million units per year. We get the majority of our women's clothing business locally. About 70% is on a 6 to 8 week turnaround compared to a turnaround of 11 months 5 years ago.
Financials
Fin24 earlier reported that Woolworths grew its bottom line by 25.2% to R5.4bn. Headline earnings per share (Heps) declined 7.6% and adjusted diluted Heps fell 7.9%. Earnings per share, which included R1.7bn profit on the David Jones disposal of its Market Street property in Sydney, increased by 24.8%.
Group sales grew 3% to R74.3bn. Operating profit declined 10.9% to R6.2bn as expenses were up 5%, store costs rose by 3.8% and other costs increased by 8.3%.
Woolworths expects market conditions to be constrained and the group will introduce structural changes to its operations in South Africa and Australia.
The group’s food division outpaced the market with growth of 8.6%, compared to revenue growth of 4.6% previously. The food division’s operating profit lifted by 8.3% to R1.9bn.
Sales by the clothing and general merchandise division increased only 1.4%. Adjusted operating profit declined by 6% to R2.1bn.
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