Paul McIntyre: Supermarket boss hones his knife

Suppliers to Countdown, Woolworths and Foodtown had better hang on to their britches this year because the boss of Woolworths in Australia, Roger Corbett, is feeling pretty bullish about ripping some fat off supplier margins and extracting more efficiencies from his new New Zealand assets.

Corbett, who on Tuesday will attend his first meeting as a board director of the Reserve Bank of Australia, had plenty to say this week about the Kiwi assets Woolworths acquired in the break-up of the Foodland Group last year.

Basically, Woolworths has discovered some additional and unexpected financial upside by skinning its New Zealand operation the Australian way. That means local suppliers should expect a few king hits in coming months. Woolworths is a ruthless retailer, as most suppliers in Australia privately lament, but it's that same ruthlessness which has the stockmarket jockeys drooling with delight.

On Wednesday Corbett fronted the retailer's results for the December quarter and half-yearly figures and once again the market skipped, pushing Woolworths' share price up 61c, or 4 per cent, to A$17.18 on Wednesday. Corbett assured the world that the retailer was on track for a 10-15 per cent full-year net profit after sales rose 22 per cent to A$10.2 billion ($11.32 billion) in the December quarter and first half revenues jumped 18 per cent to A$19.1 billion.

Merrill Lynch is among those excited about Woolworths' fortunes out of New Zealand, forecasting earnings once the old Foodland stores are contributing for a full year to hit A$252.7 million in 2007 against a forecast A$110 million this year.

Woolworths' December results included just a two-month contribution from its A$2.2 billion acquisition of Foodland units but Corbett was upbeat about better earnings from the New Zealanders.

Certainly analysts are expecting Woolworths to replicate Australian supply deals across the Tasman, such as those in the dairy sector, where milk prices have been driven down to attract more shoppers. Corbett has found it necessary on several occasions to defend Woolworths' pricing policy on dairy products, in which farm gate milk prices have plunged along with processor margins while retail prices have stabilised at far less of a discount.

But already Woolworths' expanded New Zealand operation is making Corbett & Co happy - NZ's contribution helped boost total sales growth for the Woolworths supermarket division to 23 per cent, the biggest quarterly rise in more than four years. Indeed, New Zealand is already outpacing comparable sales in food and liquor for Woolworths' Australian group. Australian food and liquor comparable store sales lifted 4.2 per cent in the December quarter, exceeding market expectations by about 1 percentage point.

Sounds pretty flash until you look at the New Zealand numbers - comparable sales were up in the December quarter by 5.8 per cent. They're certainly good signs for a very new owner - and all the slashing and "synergies" are still to come.

On the Woolworths New Zealand investment, Corbett told the media this week: "We're certainly looking at opportunities to combine our volumes and looking at ways of developing a platform with suppliers to take advantage of base businesses to gain economies of supply and economies of cost and drive our business together." That's Woolworths doublespeak for a relentless focus on costs and driving down supplier margins, although Corbett did have some good words to say about his Kiwi management.

"It's a very well-run business and the people over there have done very well with very inadequate systems which don't even integrate the business - clearly there hasn't been any money spent on them in any way," he told the Australian Financial Review on Thursday. "So the economies of being able to inject into those businesses systems already developed and economies based on the capital cost and time cost ... are real big opportunities."

Hang on folks, Corbett's coming to town - until he steps down from the chief executive's role in September. A successor has yet to be announced although Corbett is being retained by Woolworths for five years on a A$600,000-a-year consulting retainer.

* Paul McIntyre is a Sydney journalist