Woolworths Group Ltd (ASX: WOW) is trying a new tactic new boost market share and sales in the intense supermarket industry.
Woolworths was founded in 1924 by Percy Christmas, its first store was opened in Sydney’s Imperial Arcade. Woolworths is Australia’s largest supermarket business, it operates Woolworths supermarkets in Australia and Coundown in New Zealand. It also runs the retail department store Big W. With over 3,000 stores and more than 200,000 employees it’s one of Australia’s largest employers.
Here’s What Woolworths Is Doing
The Australian Financial Review has revealed that Woolworths is trying out a flash online-only sale.
According to the reporting, the supermarket giant has cut prices of more than 1,000 products in chilled food, pet-care, household cleaning, pantry and health & beauty. The discount is up to 50% on some products, as you might see in the supermarket, but it’s the number of products which are on sale which is interesting.
Of the products on sale, a majority are branded products like Nestle, Head & Shoulders and so on.
This tactic has already worked with Woolworths. In March it had a 2-day sale of online-only frozen food.
The AFR quoted Woolworths CEO Brad Banducci’s comments to analysts about the frozen food sale, “It went viral and it really popped. It was completely unprecedented…in effect we did Christmas volumes in that week with less than 12 hours’ notice.”
Is This A Good Idea?
Growing sales isn’t usually a bad thing, and management should be commended for coming up with a different way to grow sales.
However, when you add in the costs of picking the food and delivering it to the customer, Woolworths is probably earning a lower margin on the products being sold. One explanation could be that the supermarket is simply trying to clear spaces in its warehouses.
Is Woolworths A Buy?
Online sales are important for all retailers going forwards, but it seems profit margins are going to keep reducing, so I don’t think Woolworths is a buy just because it’s doing online-only sales.
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.