Supermarket giant still counting cost of failed ploy to outsmart key rival.

This is a story about one of Australia's biggest ever corporate bungles and how seemingly clever plans can backfire.

The tale begins back in 2009 when our heroes, the Woolworths board and management, came up with a cunning plan to trounce their arch rival Wesfarmers, the WA conglomerate which owns Coles supermarkets and Bunnings Hardware.

Woolworths - which owns Countdown in New Zealand - was confident. It was winning the supermarket war against Coles and thought it was a good time to drive home their advantage.

With a codename of "Project Oxygen", the Woolworths plan involved starting up its own hardware chain to compete with Wesfarmers' Bunnings. The idea was that the threat to Bunnings would distract Wesfarmers management from fixing up the Coles supermarkets. Project Oxygen would suck the oxygen out of Wesfarmers.

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Woolworths opened the first of its Masters stores in 2011. It was confident that it could extend its dominance in supermarkets to hardware and take on Bunnings, which already had a dominant network across the country.

Fast forward seven years and the plan doesn't look so clever.

After years of struggling to staunch losses at Masters, Woolworths finally pulled the pin, with new chairman Gordon Cairns saying it would take too long to get to break even and announcing he would put the business up for sale. It has made more than A$600 million ($647 million) in cash losses and ate up more than A$2 billion of Woolworths' capital.

Masters tried to make its marketing and store fit outs more female-friendly, which was very thoughtful of it, but perhaps not too wise when targeting a market still dominated by men, especially of the beefy tradesman type. And Masters had to settle for second-tier retail sites because Bunnings already had the best locations.

Every year, Woolworths management was forced to push its breakeven date back as losses mounted. Its losses were actually accelerating when Gordon Cairns announced last week that Woolies was going to sell the business.

Rather than distract Wesfarmers and Coles management, the struggles of Masters became a distraction to Woolworths' own management.

Coles is now the better performing supermarket chain after it dropped prices and launched an annoying but successful "Down Down" TV campaign. Woolworths management, in another display of misplaced confidence, decided it could keep milking customers with high prices and profit margins, but many were tightening their belts in the wake of the global financial crisis and defected to Coles.

The debacle cost chief executive Grant O'Brien and former chairman Ralph Waters their jobs, but the people we should really have sympathy for are the 7000 Masters employees whose jobs are in doubt and the shareholders.

Woolworths shares were trading at over A$30 each at the beginning of 2014, but have sunk to below A$24 over the past year as the extent of the Masters problems became apparent and the company's supermarket profits came under pressure.

Even exiting the business won't be easy. Woolworths' hardware problems will continue. US partner Lows has exercised its option to require Woolworths to buy its one-third stake at a price to be determined by an independent valuer.

So Woolies will be left owning the entire white elephant; analysts unsurprisingly say will be very tough to sell as a going concern. A less lucrative breakup and piecemeal sale of the sites and stock is more likely.

The one piece of good news from all of this is that without the millstone of Masters around its neck, Woolworths should find it easier to attract a new CEO. However, chairman Cairns admitted last week that local retail executives he'd approached to take the job didn't even want an interview.

The key beneficiary of the Masters failure is, of course, Bunnings. The hardware chain is already on a high, recently posting record sales of A$9.5 billion and its earnings before interest and tax climbing to about A$1 billion for the first time.

Those few customers which Masters managed to attract will now go elsewhere, including to Bunnings. More significantly, as Masters is wound up and sold off, Bunnings will snaffle the best of the failed chain's sites and stores, helping it to expand.

If there's a moral to this story it's probably something along the lines of: Don't spend several billion dollars of your shareholders' money to set up a new business in which you have no experience just so you can distract a rival which is already a succeeding in that sector.

When we put it like that, it sounds obvious, doesn't it?