Three years ago, Woolworths appeared to be the dominant force in Australian retail. Yesterday, at a special strategy day, the company announced it was reviewing sections of its business to try to determine how to regain the upper hand in the sector.
The review shows Woolies has some work to do. Coles has outstripped it in the grocery department, and the company has been playing catch up.
While Woolworths isn’t in trouble just yet, here’s a quick list of five strategy mistakes that let Coles back in the game:
While Coles has built up a great slogan with its “prices are down” campaign, Woolworths has for years had an equally attractive slogan – “The Fresh Food People”.
It’s a wonder then why Woolworths hasn’t been focusing on this slogan as much lately. Instead, a trip to its website shows an emphasis on discounting, while print advertisements are still focusing more on the new iPhone app.
For a while now Woolworths has been moving away from this brand, and it’s been for the worse. Instead of building up the customers’ perception of value, it moves to just focusing on discounts, which encourage customers to shop around more.
Using “The Fresh Food People” is a great brand position, and a promise customers will attach themselves to in the long-term.
Woolworths’ has been keen on pursing its massive hardware venture, Master’s, for quite some time now. Understandably, such a large expansion requires a lot of attention – but does that mean the grocery business has suffered?
While Woolworths hasn’t necessarily made a mistake here, it’s important to note that whenever expansion such as this occur the original business can suffer.
While Woolworths is undergoing a strategic review, it would do well to consider how much of its resources have been put into the hardware business from the grocery division, and see if there is a rebalancing of resources that needs to occur.
Part of the problem with Woolworths’ marketing is that it’s too reactive. As soon as Coles started showing off its “prices are down” campaign, Woolworths followed with “price knock out”.
The same occurred when Coles started using Curtis Stone in its advertisements, Woolworths started using Margaret Fulton in its own.
The intention is good but the execution is flawed. Instead of providing innovative, entertaining advertising, all customers see is a company that was too slow to get ahead of the competition.
Woolworths has missed the opportunity to position itself as a market leader. And Coles dominated that position with the “prices are down” campaign, which Woolworths followed with “price knock outs”.
Woolworths hasn’t been afraid to engage in a price war with Coles, and cuts to prices for bread and milk have been so deep they even sparked a Parliamentary inquiry.
But they’ve been slow. It was only after Coles announced it would be cutting bread prices that Woolworths followed. And the same for milk, and other items as well.
Discounts are well and good, but Woolworths has arguably devalued its brand position by just follow the leader.
For too long Woolworths has been focusing on brands that haven’t been getting the job done – Dick Smith is a prime example.
While Woolworths has already closed seven Dick Smith stores, there’s still a lot to be done. Although the chain’s rebranding has been successful, and its online operations are some of the best in the country, there are plenty of problems.
Woolworths’ consumer electronics business saw sales grow from $1.78 billion in 2010 to $1.8 billion in 2011, but actual EBIT fell from $55.1 million in 2009, to $31.5 million 2010, to $26.8 million in 2011.
Not all of the chain’s problems are its fault. The entire consumer electronics retail sector is suffering due to price deflation and a high dollar, but it’s certainly not a situation Woolworths should be in. Either it needs to really put a lot of effort into the company to expand and make it popular, or just give up on it altogether – buyers could include JB Hi-Fi or Harvey Norman.
But inventory is an issue. Dick Smith sells too many products – laptops, desktops, computer games, components, wires, phones. It needs to focus.
Big W isn’t in the best shape either – it recorded a first quarter sales drop of 2.7% to $1.04 billion – although whether Woolworths would offload the discount department chain is in more doubt.
Woolworths has built the Dick Smith brand well, but it’s time to focus on what’s important. Getting rid of the chain would be a good first step.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
