Woolworths believes a refurbishment of stores has yet to bear fruit. Photo / Kenny Rodger
Woolworths Australia says its aggressive pricing strategy at its New Zealand supermarkets and "property issues" have hampered sales growth, prompting analysts to question its approach.
At a briefing for Woolworths' fourth-quarter sales in Sydney yesterday, Australian analysts asked whether the pricing approach was sensible when Woolworths did not
have the asset base to take on the market here.
New Zealand fourth-quarter sales were up 4.7 per cent but lagged behind the 8.2 per cent growth for Australian food and liquor sales. New Zealand sales for the year were A$3.9 billion ($4.3 billion).
Chief executive Michael Luscombe said there were good signs that the approach in New Zealand - after the 2005 purchase of Progressive Enterprises - was correct.
He said that pricing had affected revenue and refurbishment of New Zealand stores, which had held back turnover, was "getting a head of steam that would increase sales".
But there was always a time lag from such changes, Luscombe told analysts.
"If you took away the property effect, in certain situations we have done very well in market share. I'm very comfortable that the [Progressive] guys are doing the right thing."
Woolworths told analysts from Macquarie Equities in May that previous owners of Progressive Enterprises had under-invested in property and Luscombe referred yesterday to improved returns from the refurbishment.
"The [market] share numbers show that we have done very well. At one time we were outgunned and we had that unfortunate industrial issue and recovered very well," Luscombe said.
The 4.7 per cent growth in sales at Woolworths' 199 New Zealand supermarkets - under the Countdown, Foodstuffs and Woolworths banners - was similar to the 4.9 per cent growth in the third quarter.
Woolworths has half of a supermarket duopoly. Competitor Foodstuffs operates the Pak 'n Save, New World and Four Square outlets.
Both groups are pursuing the purchase of The Warehouse Group and if successful would dominate the general goods market.
Both are appealing against Commerce Commission decisions that neither of them would be allowed to take over 100 per cent of The Warehouse.
AT THE CHECKOUT
* Woolworths Australia owns 199 Countdown, Woolworths and Foodtown supermarkets in New Zealand under subsidiary Progressive Enterprises.
* Fourth-quarter sales for New Zealand supermarkets were up 4.7 per cent.
* Australian supermarkets were up 8.2 per cent.
* The company says price cuts have affected revenue.
* It expects refurbished property to increase sales.
