Woolworths in an enviable position

Its peers and rivals have reported markedly slower growth, bemoaning the trading environment as consumers in the middle-to-low living standard measures (LSMs) battle rising utility costs, debt and a dearth of jobs in SA.

Later today, Cape Town-based Woolworths expects to report full-year earnings per share that are 23%-28% higher than last year, indicating the relative strength of its core market.

As a higher income focused retailer, Woolworths is in a better position than some other retailers, as there is relative strength and confidence at the high end because of the very low rate cycle, says Noah Capital Markets analyst Roger Tejwani.

Woolworths CEO Ian Moir expects the upper-income consumer to remain resilient.

"For the next three to five years, LSM 8-10 growth is forecast at 5% plus. There are not many markets that are achieving that level of growth. The South African consumer is becoming wealthier ... people are coming to us," Moir said at a forum at the Gordon Institute of Business Science last week.

In the four years since Moir took the helm at Woolworths, the group has honed its strategic focus to emerge a slicker and more formidable player. In the food space, it has taken Pick n Pay and Checkers head-on through its supermarket strategy of converting basket shoppers to trolley shoppers.

Woolworths is wooing its competitors' grocery shoppers by extending its ranges, expanding stock-keeping units, offering more branded goods and introducing more bulk.

"Our opinion is that rates will be on hold far into the future and that really protects the higher LSMs in Woolies. That leaves us with some comfort that Woolies' trading business and volume growth, and the management strategies that they are rolling out will continue to be quite attractive," says Stanlib Balanced Fund head Herman van Velze.

The group has ramped up its fashion credibility through supply chain changes as entrants such as Zara and Topshop expand in SA. Woolworths can now get to market within five to seven weeks on nearly 30% of its goods, where previously it took the group more than 11 months. It has big, swinging plans for Witchery and Mimco in SA, brands its subsidiary Country Road acquired last year.

"Our biggest competitors in SA - Edgars, on the clothing side and Pick n Pay, on the food side - are struggling. They're going through turnaround situations, they're not performing as well and that is the opportunity to take market share.... Scale is key," Moir says.

Part of its artillery is its loyalty programme, WRewards, which allows it to track 67% of spend, making the group more informed about its customers than it has ever been. Along with e-commerce, Africa is also on Woolworths' agenda.

For retailers and consumer goods companies' looking to secure long-term growth and diversify their source of income, an African strategy is key.

"Africa is growing fast ... it's a big opportunity for us ... markets like Botswana, Namibia and Kenya. A better understanding of the markets, the management of supply chain and flow of our goods, as well as better profiling stores is going to make a difference for us," Moir says.

Source: Business Day via I-Net Bridge