I had a brief email exchange with a journalism student last week, and I thought I would share my views with you (my verrrrry patient readers).
The background is that market research had been recently released indicating 72% of Australians don’t trust Coles or Woolworths and these levels of distrust have gone up since last year.
Q. How do you think Woolworths are faring in the Retail sector/Stock market?
Me: Woolworths had been a darling of the stockmarket until quite recently. Their main rival, Coles Myer performed poorly for many years, and Woolworths was much quicker in adopting and adapting ‘best practice’ from offshore (most notably through a close alliance with Wal-Mart). Much of these practices are on the warehousing/stock management side of things. Woolworths grew faster than Coles Myer and had better margins. It made some strong moves in the non-supermarket space – with alcohol sales being particularly strong.
The split up of Coles Myer and the acquisition of the non-Department business by Wesfarmers has negatively affected Woolworths. The revamp of both the Coles supermarket business and K-Mart variety stores have put pressure on Woolworths’ (and Big W’s) margins and curbed their growth. At the same time, Woolworths has been burnt by the poor performance of the Dick Smith business, and the large investments in a rival to Wesfarmers’ Bunnings are a long way from paying off.
Q. What implications might these figures of the survey have for the company and it’s competitors?
Me: As for the distrust aspect, this is far from surprising. The supermarket sector in Australia is one of the most concentrated in the world. The attempts by both Coles and Woolworths to further squeeze suppliers (as part of the drive to improve margins) have coincided with a period of perceived price inflation (although I’m not convinced the latter is actually occurring).
Consumers have apparently resigned themselves to the idea that these two duopolists are not really competing too hard. Stories of struggling suppliers seem to have fuelled this animosity.
But like the big banks, I’m not sure customer dissatisfaction will genuinely translate into consumer action. There is a strong tendency to ‘stick around’ while grumbling. Any incursion by Aldi (or to a much lesser extent Costco) is unlikely to have a big impact given the sheer weight of numbers (in terms of stores and ease of accessibility).
What do you lot think?
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