New Woolworths CEO Brad Banducci's turnaround strategy is...

New Woolworths CEO Brad Banducci's turnaround strategy is finally winning back customers.   by Sue Mitchell

Woolworths' same-store supermarket sales rose a better than expected 0.7 per cent in the September quarter, the first growth since 2015, as lower prices lured customers back to stores.

The sales result beat market forecasts, which ranged between 0.1 per cent and 0.5 per cent, and compared with a 1.1 per cent fall in same-store food sales in the June quarter 2016 and a 1.6 per cent decline in the September quarter 2016.

Transactions rose 2.5 per cent, compared with a fall of 1.2 per cent in the year-ago period, and items by 0.5 per cent (-2.3 per cent) but items per basket slipped 2.3 per cent (-0.5 per cent).

Average prices fell 1.9 per cent  -  almost double the deflation at Coles in the September quarter - indicating that volumes rose 2.6 per cent.

Woolworths is still losing market share, as the grocery market is estimated to have grown about 2.5 per cent in the quarter.

However, the growth gap between Woolworths and Coles has narrowed to the lowest level for more than two years.

Coles' same-store food sales rose 1.7 per cent in the September quarter -  half the rate in the year-ago period and the weakest growth in seven years - as competition in the $90 billion grocery market intensified.

Analysts believe Coles' food sales were flat in September, when Woolworths relaunched its loyalty program, reinstating Qantas Frequent Flyer points and enabling shoppers to earn rewards on every dollar they spend.

Woolworths chief executive Brad Banducci said the retailer made good progress during the quarter on its five key priorities and trading in supermarkets had become more consistent.

"Customers continue to respond to the improvements we are making, with Australian food delivering its first positive comparable sales growth since the second quarter of  2015, despite ongoing material price deflation," Mr Banducci said.

Woolworths' Voice of the Customer, a shopper scorecard introduced in 2015 to measure satisfaction with basics such as trolleys, service, prices, on-shelf availability and checkout queues, improved significantly over the quarter to 76, up from 75 in the June quarter and 69 per cent a year ago.

"While we are pleased with our progress, there remains much more to do. Our trading performance over the key Christmas trading period is crucial to the financial performance of the Woolworths Group in 2017," Mr Banducci said.

Woolworths has invested close to $1 billion into reducing grocery prices and improving service in supermarkets over the last 18 months.

The strategy has helped boost foot traffic and transactions. However, the investment in price and service has come at a cost to supermarket margins, which have fallen from more than 7 per cent to less than 5 per cent.

Australian food and petrol earnings fell 40.7 per cent to $1.7 billion in 2016, according to new figures released on Friday following Woolworths' move to separate the liquor business from supermarkets.

Total food sales in Australia rose 1.7 per cent to $9.3 billion in the 14 weeks ending October 2.
Woolworths opened two new supermarkets but closed three, taking the number of stores to 991.
In liquor, which has been renamed Endeavour Drinks, same-store sales rose a better than expected 1.8 per cent and total sales rose 3.8 per cent to $1.9 billion.

Woolworths opened three Dan Murphy's stores during the quarter including a new Dan Murphy's Wine Cellar in Prahran, Melbourne, bringing the total fleet to 210. It also opened nine BWS stores but closed five, ending the quarter with 1,283 stores.

Sales fell 11 per cent in Woolworths petrol stations, due to weaker prices and volumes. Woolworths hs received offers for its petrol business from Caltex, BP and Vitol, but is believed to have entered into exclusive negotiations with BP in the last week.

Sales at BIG W also went backwards again following gains in the June quarter. Same-store sales fell 5.7 per cent and total sales by 5.5 per cent to $880 million as prices fell 3.7 per cent, prompting Mr Banducci to warn of further losses this year.

BIG W's sales were squeezed by a drop in stock keeping units, price cuts to clear unwanted stock and deleted lines, and a reduction in the number of unprofitable promotions. Like Target, BIG W is moving towards an every day low prices model and introducing more private label goods sourced directly from overseas.

Mr Banducci said toys, books and audio visual performed well despite changes in the timing of the toy sale, but apparel sales were markedly softer than expected, compounded by the cold start to spring.
"Looking forward, we expect modest improvement in apparel sales in the second half as we transition to directly sourced and designed product," Mr Banducci said.

"However, this is unlikely to offset the deflation and strategic clearance activity that will continue throughout 2017, impacting sales momentum and margins. As a result, we do not currently anticipate an improvement in 2017 EBIT compared to 2016," he said.

BIG W lost $14.9 million before one-off costs in 2016 compared with a profit of $111.7 million in 2015.
"Whilst it is still early in our multi-year turnaround we have made solid progress in driving our strategic plan," Mr Banducci said. "This includes launching our own online site in the quarter, clearing excess inventory and reducing the complexity of our offer."

BIG W fared better than Target, where same-store sales plunged 22 per cent in the September quarter after it cancelled the July toy sale and cut back on promotions in favour of lower everyday prices.
However, BIG W lost share to Wesfarmers' Kmart, where same-store sales rose 8.2 per cent.

Woolworths provided no sales update for its loss-making home improvement business. The sale of Home Timber and Hardware was completed earlier this month and Woolworths is still in mediation with former partner Lowe's over the sale of Masters to a consortium of property developers.

more to come ..