Only Woolworths Food and some others remain safe …
New Woolworths CEO Sam Ngumeni says the group is “undertaking a strategic review of all underperforming or suboptimal businesses, geographies and portfolio components” as one of five shifts in a “reset” of the business.
This reset will see it focus and reorient the group around its market-leading Food business, but he did stress that it is not turning its back on other units.
Ngumeni says the review will include its “apparel proposition”, both in South Africa and Australia (its Country Road Group operation).
He admits that, alongside Food, the only other units which are performing are Home and Beauty (within its Fashion, Beauty and Home or ‘FBH’ business) and the standalone Absolute Pets, which is “doing phenomenally well”.
This translates to the fact that, realistically, the only units up for ‘proper’ review are the apparel ones.
Ngumeni is intent that “Beauty and Home play a particularly important role in extending the food relationship into a broader lifestyle proposition”.
“These growth pockets are identifiable and scaling, and they are categories where brand equity translate into commercial momentum.”
More Home, less Fashion …
“There’s a lot more we can do, particularly in Home, which holds a natural cross-shop affinity with our Food customer,” says Ngumeni.
“We are also expanding product ranges, and will now be expanding footprint in existing stores, converting unproductive Fashion square metres into highly productive Home ones, better satisfying the customer mission and improving basket economics.”
Read: Woolworths flags slower H2 growth as consumers rein in spending
Its Home unit, within FBH, grew turnover by 11.7% in the year.
While Fashion accounts for 80% of the unit’s R16.1 billion turnover in the 52 weeks ended 28 June, Home accounts for “slightly” more than Beauty’s share of the remainder.
This means Home is a roughly R1.8 billion-a-year business.
For context, Mr Price’s homeware division (comprising Mr Price Home, Sheet Street and Yuppiechef) did around R7 billion in retail sales last year.
Woolies’s Home unit is about three times the size of Yuppiechef.
**Risky reset **
This fundamental reset, which Ngumeni admits is “risky”, is about “being more deliberate about where we choose to compete, and how we differentiate ourselves”.
He says just because he spent the most recent two years as CEO of the Foods business didn’t motivate the “reset”.
But “it did sharpen [his] conviction … that this is the right thing to do”.
Previously, the group treated all its divisions equally when it comes to capital allocation. Going forward, this will not be the case.
Ngumeni says that following the review, “where performance can be improved, we will act decisively”.
“Where structural changes are required, we will address [them], and where capital can generate better returns elsewhere, we will be prepared to make different and sometimes difficult choices.”
Read: Shakeup at Woolies as clothing boss ousted after nine months
Woolworths says it is reorienting the “group around a market leading premium food business” because this is its “strongest competitive advantage and primary engine of value creation”.
Food at the centre
This means “Food, at the very centre of our portfolio, with carefully selected adjacent categories strengthening the customer proposition and our own ecosystem”.
“In essence, a food-led flywheel driving greater customer engagement, footfall, loyalty, basket expansion, and ecosystem economics,” says Ngumeni.
Food means not only its supermarkets but also its food-service operation, spanning W Café and its in-store coffee carts.
Food services will be expanded as a “key adjacency to the core”.
This is the only unit from its previous incubator, W Ventures, that was not absorbed into existing businesses, like others (such as W Edit and W Cellar). Ngumeni says Woolies wants to “be a little bit more aggressive in our rollout plan going forward”.
Read: Woolworths needs to look in the mirror
Currently, he says, it has only “230 Café and coffee sites, but three times the number of food locations, which explains why less than 20% of our food shoppers shop our food-service offerings”.
“A reset of this nature takes time. It’s not easy, and it’s not without execution risk, but it is a necessary risk if we are to achieve our objective.”
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