Why Woolworths CEO Brad Banducci is pushing frozen peas
(Banducci’s big tip is frozen snow peas — just $3 a pack and, thanks to advances in quick-freeze technology, tastier than ever, he says.)
Banducci and his team are watching closely for signs that consumers are feeling the pinch, especially in what are internally referred to as “thrift” stores (suburban stores where savings are a primary focus for customers) and among the cohort “traditional” or “thrifty” group, which Banducci says has a weekly budget of around $150 to feed a family of four – no small feat considering the current situation of protein prices.
While the food division’s gross margin increased in the quarter, Banducci insists Woolworths is not implementing shelf price increases beyond those requested by suppliers; the margin improvement was driven by changes in the product mix, including a sharp decline in low-margin tobacco sales and low-margin red meat sales.
What Banducci calls Woolworths’ “price guardrails” are well and truly in place, he says. About 500 prices have been lowered in the winter and there are more to come in the spring, including frozen food prices to give all cash-strapped customers options for their meal plans.
It’s hard not to have a little sympathy for Banducci and Cain at Coles. Having been on the frontlines of the pandemic – from the erratic customer behavior of the 2020s during the great toilet paper war, to the omicron outbreak that pushed supply chains to breaking point – they are now entering a new economic cycle that will be dominated by the need to balance inflation and value.
As well as focusing on customers, Banducci says Woolworths needs to focus more on improving productivity and efficiency in an environment where salaries for Woolworths staff need to rise.
Throughout much of the pandemic, and in the six months to December, buying habits were such that higher unit volumes drove sales growth. Now, says Banducci, inflation is driving sales growth, while unit volumes return to long-term levels as, for example, people start eating more outside the home again. Comparable basket size growth was 1.8% in the June quarter, compared to 10% in the September quarter of 2021.
Banducci says his team needs to focus on unit economics in a way that has been very difficult over the past two years, due to pandemic disruptions.
“This is the biggest opportunity and when we look at the underlying metrics of article productivity…there’s a huge upside for us.”
While this new part of the business cycle has its challenges, Banducci says there is a more normal pace of operations. The six distribution centers that Woolworths has built in recent years, for example, were never designed to operate with 30% staff absenteeism. But Woolworths can now begin to better integrate these distribution centers into its business and drive efficiencies much further than has been possible in the past two years.
“This phase is one that we understand and understand how to manage more effectively,” says Banducci.
“We love retail because it’s challenging, exciting and customer-focused,” says Banducci. “They will tell you what to do.”