Woolies won't let rivals steal its share of quality food market

Woolworths, SA's leading retailer in the premium food space, is prepared for an onslaught from competitors who want to try and eat its lunch, with group CEO Roy Bagattini promising the group will not "give an inch" to rivals in this segment.

In an exclusive interview with Business Times this week, Bagattini, a former SABMiller and Levi Strauss executive who has been CEO for 15 months, said Woolworths had increased market share in its food business for 10 consecutive years and was more than ready for any challenge.

"Woolworths and premium foods are synonymous. In fact, in my view Woolies defines the high-end food category in South Africa. So we do take it very seriously when there is any attempt to come after us and we are certainly not going to concede an inch."

Bagattini said it was only natural that Woolworths, as the "pre-eminent food retailer in the country", would have a target on its back but he was confident that the years of investment in the back-end capabilities of the business, which include its "formidable new product development and innovation capability, its long-standing relationships with suppliers and a relentless commitment to quality and sustainability", would secure its "leading position".

SA's retail market is intensely competitive. Shoprite, through its Checkers brand, is increasingly making inroads into the more affluent food segment of the market. The latest Brand Finance report on the 50 most valuable and strongest brands in SA, released this month, had Shoprite slightly edging out Woolworths for 12th position.

In April, departing Pick n Pay CEO Richard Brasher took a friendly swipe at rivals, saying the group was taking market share from most of them, with its core food and groceries segment on a par with Woolworths' star food business.

Bagattini said what gave Woolworths a competitive edge was its "uncompromising commitment to quality and the fact that it holds itself to the highest quality standards in the market. No-one comes close to that and we can continue to deliver against this because of our leading R&D [research & development] capabilities, our ongoing focus on innovation, backed up by our centralised distribution and cold-chain capabilities. When you put that all together, you have a formidable competitive advantage that is not easy to replicate."

Late last year Woolworths said it was committing R1bn in the next two to three years to reducingprices in its food division. Initially R750m was set aside for the division. It said it was working with its suppliers to drive "mutually beneficial efficiencies" for these price initiatives in "order to be more accessible to more customers while still retaining its aspirational appeal".

Bagattini said the group was looking at taking a "broader approach" in its price investments in food to include more categories.

Changes are also being made in its fashion, beauty and home (FBH) division, with Manie Maritz introduced as the new executive responsible at the interim results in February. At the time, Bagattini said the group would adopt a more focused, streamlined approach to its fashion offering.

This week he said there was "no question" the clothing business had lost its way and delivered disappointing results for a while but it was "fundamental to who we are as a group and it's imperative that we fix it".

"Historically we have attributed the performance to poor execution but in fact it was as much a strategy problem as an execution problem. There have been moments where I think the teams had thought they were getting it right only to see the very next season the progress not really coming through again," he said.

"What has been important is the need for us to really redefine the role that Woolworths as a clothing brand plays in the apparel market in South Africa, and who our customer is. I think we now have a much clearer sense of where we want to take the business."

Bagattini said a big theme of the new strategy was"edit to amplify", which entails fewer brands and categories but much "more conviction and confidence" in the ones it is going after. "The formal-wear component of stores has shrunk. We've reduced space and allocated more space for casual categories.

"We've introduced an athleisure range, which is really resonating with customers. We are going to be expanding on that quite substantially as we go forward with the balance of the year. We are also going to be dialling up our men's offering in that category, something we haven't done before."

Bagattini said he was encouraged by the progress the teams were making, saying "FBH provides the single biggest opportunity to unlock value for the group" and it "is something we're absolutely committed to getting right".

As for operations in Australia, Woolworths has separated the balance sheets of David Jones, which was a drain on the group, and the successful Country Road Group.

"Importantly now, each business is set up to separately pursue their respective strategic potential," Bagattini said.