Writes AFR Chanticleer columnist Tony Boyd: Shareholders in...

Writes AFR Chanticleer columnist Tony Boyd:

Shareholders in supermarket and liquor group Woolworths now know that the cost of the strategic mistakes of the past five years is about $4.22 billion but the pain is not over yet.
The latest $972 million in impairments are designed to rebase the company for a new strategy under chief executive Brad Banducci that will involve a "three to five year journey".
There were $3.2 billion in impairments earlier this year to cover the closure and sale of the Masters hardware chain.

The new strategy at Woolies involves shutting down 17 loss making or poor performing supermarkets out of a total of 946. Notwithstanding the closures, the company will be opening 45 net new supermarkets over the next three years.
The overarching objective in supermarkets is to lift the basket size of each customer and thereby increase the sales per square metre, which has been falling for five years.

Capital released from the store closures will be used to reinvest in existing stores.
To put more rigour into the management of the business, Banducci is making sales per square metre and return on funds employed as the twokey performance measures for executive bonuses.
Woolworths has sales per square metre of about $15,000, which is less than the amount earned by Coles, which has much lower market share.
The strategy involves moving senior executives working on administrative tasks in head office into the businesses.

Another part of the strategy is making BigW a standalone business which could be sold if necessary.
The difficulty in achieving a rapid turnaround of a large supermarket chain has been shown in the

United Kingdom where Tesco is the best case study.
Tesco has been under performing the market in the UK for about five years. The stock is down 27 per cent over the past year.
Tesco has been a value trap for investors. Value investors loaded up on the stock in the belief that its multi-year turnaround strategy would work.

Read more at the AFR ($).