Woolworths chief executive Brad Banducci is stepping down from Australia’s biggest supermarket chain – but he’s going down swinging.
Against a backdrop of multiple parliamentary inquiries and a year-long pricing investigation, Banducci maintains that the grocery sector is “unbelievably competitive”.
“It’s an inconvenient truth to many, but it is statistically, unequivocally true,” Banducci told analysts on Wednesday, hours after announcing his retirement.
“The traditional competitors are getting more competitive. But then in food and everyday needs, essentially you’ve seen virtually every retailer get into these categories because it drives traffic and basket for them.”
That competition did not stop Woolworths ramping up profits derived from its Australian supermarkets business to boost its overall half-year net profit to $929m, even as its customers grapple with fast-rising prices.
The groceries division is by far the company’s biggest money spinner, with sales rising by 5.4% to $25.9bn. The unit’s profit margins expanded by 24 basis points to 6.1%, representing a new high-water mark that shows it has more than offset any cost increases through its pricing decisions.
The performance of the Australian food business is so strong that it more than covered for weakness in Woolworths’ New Zealand arm and the subdued performance of Big W, sending its overall net profit result 2.5% higher.
The fatter supermarket margins will only add to the rising tide of suspicion that Woolworths takes advantage of a concentrated market to pressure suppliers and hike prices on shoppers.
The company’s financials show that even though the number of items being sold is not keeping pace with population growth, it is still becoming more profitable.
The food retailer has consistently defended its relationships with the agricultural sector, and credited improved profit margins to productivity gains and its growing digital business.
Banducci specifically mentioned the store management of “pickers”, who fulfil online orders, as an area of improved efficiency.
Turbulence ahead
Banducci’s unexpected retirement, scheduled for September, comes at a turbulent time for the grocery giant.
The outgoing chief executive is due to appear before a Greens-led Senate inquiry next month, which is designed to investigate the market power and pricing decisions of major supermarkets, with a focus on Woolworths and Coles.
Banducci, who has been in the top role for more than eight years, disclosed to analysts the Senate inquiry had led to a “material drop” in reputation and brand at major supermarkets.
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Any skeletons uncovered by a pricing investigation by the Australian Competition and Consumer Commission will heap further pressure on that brand and convince more customers to seek alternatives to the two majors.
Meanwhile, he said the fallout from the company’s decision not to stock Australia Day merchandise did not impact its sales, while conceding Woolworths could have done a better job in explaining its reasoning.
As it stands, the two major supermarkets control two-thirds of the market, far exceeding the concentration found in comparable economies.
While Banducci is viewed fondly by the investment community and has a reputation for being highly personable, his resignation will be linked to a flash of anger captured by ABC’s Four Corners, broadcast earlier this week.
Banducci briefly walked away from a television interview after becoming frustrated during questions about market power and making ill-advised comments about the Rod Sims, in which he appeared to dismiss the former competition boss’s analysis by describing him as “retired”.
Woolworths disputes that Banducci’s own retirement is linked to the broadcast, arguing on Wednesday there had been an “extensive international search process” that resulted in the appointment of Banducci’s successor, Amanda Bardwell.
It will be a tough initiation for Bardwell, who heads the company’s WooliesX digital division that includes loyalty and e-commerce operations, given she will need to deal with any fallout from the ACCC investigation and parliamentary inquiries.
Investors greeted Bardwell ominously by sending the Woolworths share price down by more than 8% in the hours after the announcement, despite the half-year results being largely in line with expectations.
A similar task was handed to Vanessa Hudson last year, when she took over as Qantas chief executive from the embattled Alan Joyce amid a reputational crisis at the airline.
