Woolworths’s SA food business has experienced an uptick, even as competition in the high-end food sector heightens.
In a trading update released on Wednesday, Wooworths reported food retail sales up 6.5% compared with like-for-like sales ended November 2018. Total food sales rose 8.8%.
Old Mutual Invest analyst Meryl Pick said Woolworths has a competitive advantage selling food to the high-end customer — even as Checkers rolls out “FreshX” stores with bakeries, a pizza oven, coffee shops and more fresh produce in a bid to win market share among the wealthy.
Pick said, “Woolworths has spent time building relations with food suppliers, innovating and developing excellent cold chain storage, which will continue to keep them leading the market. It has taken decades to build this food business and the level of innovation makes them difficult to disrupt.
“Competition is increasing at the upper-end in food retail,” she said. “However, Woolworths has a strong competitive advantage, both in terms of quality and innovation. [It] has a long track record in high-end food with strong supplier relationships that have spanned more than a decade. Over the years, it has also invested in cold chain best practices to ensure quality.”
According to the independent Retail Liaison Committee, Woolworths’ clothing and home sales beat competitors, even though sales were only up 2.8%. This, said Pick, “suggests a soft trading period for the sector as a whole”.
However, its Australian David Jones business continued to under-perform. David Jones sales declined 2.1%, with the company saying a store refurbishment contributed to the decline.
Comparable store sales, including online, declined 0.7%, the company said. Country Road sales decreased 4.7%.
On the poor Australian results, Pick said the increase in costs is linked to major renovations at a leading store and the decision to move the Country Road brand out of Australian retailer Myer and sell it exclusively at its own stores.
“The past few reporting periods have been distorted by renovations at the Elizabeth Street flagship store in Sydney, which makes up roughly 10%-15% of David Jones sales. In the long term these are important strategic decisions, but it will be 18 months or so before we can assess whether they are paying off — when we see less messy results.”
Woolworths acquired David Jones in 2014, and the group’s performance was consistently below expectations. David Jones has been written down a number of times, including a A$437.4m (R4.4bn) writedown for its year ended June 2019.
Woolworths, which paid R21.5bn for David Jones, valued that business at about R9.65bn at end-June.
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