Fashion and food retailer Woolworths will turn some of its in-store cafes into fully fledged restaurants offering dinner, to expand its food services business.
In July last year, it opened for dinner at its Woolies Cafe in Waterstone, Cape Town, which also has a wine and cocktail bar. The company plans to open similar establishments in some of its key areas.
CEO Roy Bagattini said the concept restaurant had recorded 30% growth since opening, an indication of the demand for Woolworths' food services.
“We are testing the concept and have more in the pipeline,” he said.
He said Woolworths is building a big food services business on the back of its iconic and popular food brand. Food services houses the group’s food stores, fast food outlets called WNowNow, WCafes that sell breakfast and lunch, and coffee carts.
Bagattini said food services were a “massive opportunity for us”. The group has about 100 cafes, and 350 food stores. “The opportunity to extend our food stores with cafes is massive, but also the opportunity of putting some standalone cafes into place.”
Woolworths food continues to be a stellar performer in the business with turnover up 11% to R47bn for the year to June. Profit before tax was up 15.7% to R3.1bn.
We expect Woolworths’ differentiated premium food business to continue to be the star performer
— CEO Roy Bagattini
The focus on cafes and other food businesses is part of Woolworths' growth strategy for its new businesses that are housed under a new unit, Woolworths Ventures. Other businesses in Ventures include liquor outlet WCellar, pet store Absolute Pets, and WEdit, smaller clothing store formats.
Bagattini said the group would double down on pet stores.
“Pets have always been an integral part of the family. Globally there is increased spending in assuring their wellbeing. Our determination to lead in this category was a key motivator behind our acquisition of Absolute Pets. This is a great business with a complementary brand positioning, loyal customers and well-established market presence, and it enables us to leapfrog in becoming the pet care destination of choice in South Africa.”
Woolworths also sees growth in its beauty business, eyeing its first standalone store and a research and manufacturing centre that will produce products for the business.
Bagattini said the beauty business had doubled over the past few years and “we are going to double that business again in the next few years”.
“That's going to come from obviously expanding the footprint of that business in our existing stores, but also potentially in opening up a number of standalone stores. We are already fast becoming the sort of destination for beauty product shopping in the country, and we certainly have the representation of brands all across the beauty category. The big luxury brands are very much partnering, collaborating with us as we grow that business.”
He said the manufacturing facility in Cape Town was going to help drive innovation and new product development. “The beauty business allows us to exploit the cross-shop opportunity between food customers and beauty customers and that helps us become much more of a lifestyle retailer. That's been very important.”
On the liquor business, Bagattini said while Woolworths' customers spent a fair amount on food at their stores, they tend to buy alcohol elsewhere. Alcohol accounts for about 2% of sales while peers make north of 10%.
“You can see there is a significant upside opportunity for us there, but we want to do it in the Woolies way so it's important for us to provide a unique and different customer experience as well as the right product. We are the third-largest brand of wine in the country and many people don't know that. We sell about 1.5Ml of bubbly wine every year.”
Expansion of existing business in the rest of the continent where Woolworths already has a footprint is also on the cards. Bagattini said it's not looking to enter new markets but rather to add more of its products in existing stores.
In the year to June, Woolworths recorded a 4% increase in turnover from continuing operations to R75.2bn while profits were down 48.8% to R2.6bn. The Australian business, Country Road Group, was once again a contributor to the decline in performance.
Bagattini said the year had been “a lot more challenging than we expected largely by virtue of the macroeconomic backdrop which steadily worsened throughout the year”, particularly in Australia.
While the food business continued its strong growth, fashion, beauty and homeware sales were behind expectations. Pressure on discretionary spending, shipping delays and the significant impact of international e-commerce brands such as Shein on the South African retail market dragged the unit.
“We faced a number of external headwinds but we also scored our own goals because of poor product availability.”
Nandi Qubeka, head of research and fund management at Nedbank Private Wealth, said the results were disappointing and below expectations. The performance of the South African fashion business and Country Road in Australia deteriorated further in the second half of the financial year. However, the ongoing focus on on-shelf availability and enhancing the value proposition has supported the strong performance of the Woolworths food business.
“We expect Woolworths’ differentiated premium food business to continue to be the star performer. A recovery in the clothing businesses will be driven by an improvement in the macroeconomic environment and various strategic initiatives at SA fashion, home & beauty (divisions) and Country Road.”
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