Woolworths Limited has announced a new ‘Lean Retail’ model intended to deliver more than $500 million of cost reduction across FY15-16.
Woolworths Ltd CEO Grant O’Brien said the cost reductions will enable investment in improving all aspects of the customer experience, including lower prices, better convenience, improved service and access, and a commitment to innovation.
“We place the customer at the centre of everything we do and have updated our operating model to reflect evolving customer expectations,” he said.
“Our ‘Lean Retail’ model builds on our historical approach of driving growth via seeking efficiency and investing in our customers, but with a clear recognition that the approach needs to be tailored to a modern era. It is focused on three key outcomes:
- Cost: improving our efficiency and cost position through taking ‘real dollar’ costs out in a low-inflation environment.
- Customer: investing in a multifaceted and seamless offer to our customers.
- Growth: growing our customers and market share.”
Woolworths’ investment in the customer offer will be funded through a significant and ongoing focus on cost management within its non-customer-facing operations. Last year, it reduced non-customer-facing employee roles by around 400 full-time positions and found major areas of efficiency in its supply chain and back-office processes. Woolworths will reduce non-customer-facing roles by a further 400 positions by the end of H1-FY16.
As part of ‘Lean Retail’, Woolworths will invest in a significant supermarket refurbishment program with more than 80 stores per annum slated for improvement over the medium term.
On the omnichannel front, around 250 new Click & Collect locations will be added over the next two years, taking the total Click & Collect network to approximately 1,000 stores.
“We will also invest in manufacturing capability to bring greater product ranges to our food customers, particularly in the ‘food for now’ and ‘food for later’ convenience categories,” Mr O’Brien said.
A new division, Woolworths FoodCo, will have responsibility for developing new product categories, improving fresh meat supply and processing facilities, and developing strategic sourcing relationships with Woolworths’ primary industry partners.
Woolworths will also team up with western Sydney-based, high-quality food manufacturer Beak & Johnston, under a 12-year contract, to deliver Australia’s first dedicated facility for ultra-fresh ready-to-cook and ready-to-heat meals.
Australian and New Zealand supermarkets have been streamlined into one division, which will be called Woolworths Food Group with Brad Banducci as Managing Director. Dave Chambers is Director Woolworths Supermarkets, and Steve Donohue is Director Countdown Supermarkets.
Steve Greentree will be Director Woolworths FoodCo. Michael James will lead Petrol, small stores, convenience and Thomas Dux as Director Woolworths Small Stores.
Mr Banducci said Woolworths Food Group’s strategy to win the trust of its customers and increase its share of their food spend is through lower prices and improving all aspects of the shopping experience.
“What is clear is that while lower prices are essential, the true battleground is the overall customer experience,” he said. “So we will not be beaten on price, and we will provide better convenience, superior freshness and a more appealing range, and a focus on innovation.”
A new pricing and value strategy will be implemented to “neutralise” Coles and “contain” ALDI’s impact on Woolworths’ sales, with measures including lower pricing, better ranging, targeted customer offers using a revised and improved loyalty system, and a detailed strategy for improving own brands.
“Own brands will play a key role in competing with limited range discounters,” Mr Banducci said. “Woolworths will create higher quality and better-priced own brands to close range gaps where no branded alternative exists.”
Mr Banducci said Woolworths has 14.6 million regular customers and 500,000 online customers.
“They are visiting more frequently than ever before, but they are also getting fewer of their needs exclusively from us,” he said.
“We need to gain customer trust and a greater share of their shopping basket, and we have a clear plan and the investment capacity to do so. By getting customers to put us first, we can regain the sustainable sales momentum we need to extend our leadership.”