Agribusiness Review - Vol. 3 - 1995

Paper 1
ISSN 1442-6951

Challenges in food retailing: the Woolworths perspective ¹

Reg Clairs ²

1 - This is an edited version of the paper presented to Agribusiness at Work, the Eighth Annual Conference of the Agribusiness Association of Australia and New Zealand, Orange, New South Wales, September 1995.
2 - Group Managing Director, Woolworths Ltd.

• Introduction
• A New Approach
• The Future

Introduction

The main focus of this paper is on how Woolworths has successfully met the challenges to food retailing resulting from changing consumer preferences in Australia.

Firstly, let me say why Woolworths has adopted the agribusiness concept. Essentially, it is because we no longer perceive Woolworths as a simple retailer. By definition, a retailer purchases from the producer, prices the product, puts it on display and facilitates the sale. Rather, we see our role as the buying agent for our customers and an integral part of the supply chain. Our customers' satisfaction is dependent upon our ability to do our job well.

But it was not always that way. Back around 1983 Woolworths was heading toward disaster. We lacked a clear direction or a vision for our future. Some of our directors and senior management at that time were caught up in the wave of entrepreneurship fashionable then, and were diverting their energies and a good deal of the funds being generated by the core business, into alternative ventures that proved unproductive and a constant drain on our resources. As this trend continued, the problems worsened.

The stores, starved of funds, deteriorated. Leaking refrigerators were not repaired, trolley wheels sped turning, and staff morale diminished. Goods were commonly out of stock, and dissatisfaction drove customers into opposition stores more responsive to their needs. By 1985, we were in deep financial difficulties. History then records that our shares were acquired through a series of transactions by WL and subsequently by the Adsteam Group, and we were de-listed from the Australian Stock Exchange as a public company. At that stage it was contemplated that this great company, which had for 60 years been an icon in Australian retailing, would be broken up and sold off in bits to the highest bidder.

Does that scenario seem all too familiar, as we continue to witness our farms and factories being sold to the highest overseas bidder, as was Pacific Dunlop's Food Division recently?

A New Approach

So what caused Woolworths to not just survive, but now be recognised as a great Australian success story? Well, back again to 1983 and 1984. To resolve our problems, a group of some 10 to 12 of us in middle management formed a strategic planning group, and commissioned comprehensive market research as an initial step. The research covered every aspect of our market environment. We studied our own company through the eyes of our stakeholders. With professional researchers, we asked our staff, our management, our suppliers and contractors what they thought of us. We asked our customers their opinion of us. We were forced to face the truth. It was not a pretty picture. We were seen as followers, not leaders; reactive, not pro-active; systems driven, not customer driven. Generally we were perceived as a lacklustre, under-performing organisation. At the same time, we sought to understand our competitors' strengths and weaknesses. Above all, we ascertained through this research what Australians really wanted, what motivated them to choose their place to shop, and what their expectations were for the future.

Then slowly and painstakingly we pieced it all together, like a giant jigsaw puzzle, and the following picture became visible. Australian customers did have a view of what they preferred. They wanted clean bright shops, they wanted fresh nutritious food, they wanted convenience and they wanted to be served by happy, motivated staff.

And so 'The Fresh Food People' campaign was born in 1986. A decade later the Company has returned from the brink of disaster to be the pre-eminent food retailer in Australia today, on par with the best in the world.

So, what does this mean, and how is it applicable to agribusiness? Well, a significant part of our success can be attributed to our strategy relating to our suppliers. As we embarked upon the 'Fresh Food People' campaign, there was a great deal of scepticism and doubt. Our reputation in dealing with suppliers left a lot to be desired.

So during the first few years of the turnaround, from 1986 until around 1990, a great deal of work had to be done rebuilding burnt bridges. Trust had to be established and new alliances forged before we could truly deliver what we were promising our customers. Re-training at all levels had to be undertaken to establish a new culture.

And so slowly and carefully the emphasis has shifted from one of beat the supplier into submission and squeeze out the cheapest price, to the emerging culture of how best together can we satisfy the end customer. To facilitate that change we have come to the realisation that we are no longer simply a retailer, but rather an integral part of the supply chain.

Today, we see ourselves as the conduit through which the product passes to the consumer and back through which we transmit information to our growers and suppliers, so they may better meet the expectations of the customers. There are now many examples of our relationships with primary producers where, by working together, sharing information, and understanding the needs of the end customer, a better product is being produced, and the resultant improvement in profitability is being shared by both parties.

A prime example is the past seven years of work that has gone into the beef industry in Queensland, where our team at Ipswich, together with the Meat Research Corporation, the breeders and lot feeders have carefully cross-bred the Bos-indicus with British and Euro breeds, and consequently developed a configuration that best suits today 1 s consumer preferences of low marbling score and minimum fat. Further enhancements will see the Video Image Analysis method being developed to enable Woolworths to pay growers on a yield base, thus ensuring premium payment for prime quality carcases.

Similar work is being done in the horticultural field, and our intention is to fully utilise the scientific knowledge available to enhance production and quality in Australia. We are in the process of planning a highly productive tomato growing facility, importing technology developed in Israel. The purpose of this R&D project is to achieve a quantum leap in a farming practice for Australian farmers.

Hopefully, from the horticultural project, we may see a move by progressive producers to adopt the technology and, as a consequence, lift the production and quality of our produce. From Woolworths' perspective we are committed to significantly grow our core business and remain at the forefront of the retail industry in Australia.

The Future

More importantly, in the long term, we are developing an infrastructure that will lay the foundations for a major drive into exports. As our business reaches maturity in Australia over the remainder of this decade, we hope to have established a sound business, exporting Australian fruit and vegetables, meat and dairy products, and perhaps even processed and manufactured products.

To achieve that growth, both domestically and globally, we need to understand the trends that are constantly occurring and develop programs to meet the changing needs. So, we conduct research. Two types of research are continually undertaken to monitor our Australian customers. One is at a macro level, where we have a series of questions discreetly placed into a national monitor conducted throughout Australia every week.

This identifies attitudes, lifestyle changes, expenditure and other factors. The second type of research at a more micro level, is through the use of focus groups in our supermarkets across Australia in which we learn more detail of the daily or weekly requirements, the responses to advertising and marketing programs, and about what it is that influences consumers to purchase.

From these areas we piece together the trends and adjust our offer continuously. Each new supermarket we open today has modifications since the last one, and as we refurbish stores we bring each one up to date with the latest developments.

Some of the key trends today you may recognise but let me outline a few. In so doing, I intend to give a broad overview and then some specific details to support that -view. The main trends are as follows:

· The most significant trend of all in food shopping today is towards freshness, or perceived freshness, followed very closely by the attributes of 'clean' or 'safe'. Put simply, today's consumers are shopping more often, sometimes three or four times each week, purchasing sufficient food for 72 hours, and wanting the products to be clean, free of chemical residues, and safe to eat.

· The next significant trend is towards convenience. This is caused by two factors. One is lack of time. That is, lifestyle demands deprive the consumer of time to create and prepare meals, causing consumers to prefer someone else to do the work for them. The other factor is lack of knowledge and skill in preparation and cooking by the emerging generation. That class I went to at school called 'domestic science', where young pupils were taught the basics about the kitchen and home, has been replaced by the building opposite the school called McDonald's or Kentucky Fried Chicken.

· The final key trend relates to diet and lifestyle. Depending upon the individual's lifestyle, there is a preference for either calorie-reduced, low fat, or lean products on the one hand, or indulgence on the other. There is even a combination to keep us all on our toes for the customer who eats tabouli salad on grain bread for lunch, has a Lean Cuisine dinner, then follows it up with King Island cream on a fresh strawberry flambe` for desert.

In fact, the demand for indulgence products is growing. Sales of yoghurts and dairy deserts are growing by 25 per cent a year. Products, like ACF's Chocolate Mousse, have taken 8.3 per cent of the $120 million chilled desert market in twelve months. Arnott's Biscuits' 'Obsession', which contains a selection of Tim Tams, Mint Slice and others, has captured significant market share.

And so the trends are everywhere in the store. To retain customers we must adapt and modify continuously. Also what works in Orange in NSW may not sell in Cairns or Hobart, so individual store formatting is a significant part of our marketing strategy.

From these trends emerge a plethora of examples, far too many to list, but let me provide just a few.

• A progressive shift from the grocery aisles to the fresh food departments has seen a shift from canned and packeted items to chilled and semi-prepared items.
• Pasta-based fresh meals in the chilled cabinet now command a dominant position, from being zero five years ago.
• New ranges of fully prepared meals are now emerging in the fresh area. We predict sales of around $3 million in this first year, but are budgeting for increases of 50 per cent per annum over the next few years.
• Value added chicken has significantly grown, taking some business from the frozen cabinet and, more importantly, creating new inroads into the fast food market. Products are prepared in the stores, such as stir-fry, marinades, kebabs, and coated, ready to be easily cooked at home. We have seen value added chicken jump, in three years, from 10 per cent of chicken sales to 20 per cent and strengthening.
• Fresh fish is now rapidly becoming a component of modern supermarket offerings. As product availability and distribution systems have improved, it is now possible for supermarkets to sell fresh fish alongside the delicatessen, chicken, and meat cabinets, thus offering the customer a wide choice.
• In the meat cabinet there have been substantial changes. No longer are sides of lamb or forequarter of beef on the weekly shopping lists. Rather, the demand is for leaner cuts, devoid of fat and marbling, and in portion size pieces. This suits the small family, which prefers not to buy two or three kilograms and freeze what is not required, then have the trouble of defrosting for later use.

The Australian Pork Corporation has done a great deal to promote leaner pork cuts and maintain customer confidence in their product. The National Heart Foundation's endorsement of cuts has helped avert a huge slump in the per person consumption of beef. But it has required butchers to change life long habits, and break down the primal rumps, side and blade into individual muscle groups devoid of all fat and tissue. Our industry is very aware of the need to develop a larger and better yielding lamb for the domestic market if that commodity is going to survive on the butcher's shelf.

The most profound change has occurred in the area of Imit and vegetables. Ten years ago, perhaps only 80 assortments were carried, and most people purchased the fruit and vegetables at outlets other than the supermarket. Today we have up to 400 assortments available, and dominate that market. In 1994-1995 Woolworths alone sold in excess of $1 billion of fruit and vegetables in our stores. Again, the trend is to convenience:

• ninety per cent of watermelon sold is pre-cut;
• washed potatoes far outsell brushed;
• assorted lettuce leaves pre-packed are now emerging as a significant line;
• easy to microwave vegetables are prepared. such as carrots and broccoli;
• customers are looking for pumpkin already peeled;
• onions are already sliced to prevent the teary eye;
• the growth in items such as fresh asparagus shown by the fact that in 1991, over the 10 week Spring season, we sold 20 tonnes, while in 1994, over the same period, we sold 125 tonnes; and
• there is a demand for sweeter fruit, resulting in a higher brix level in grapes and citrus, and market growth in hydroponic tomatoes, reflecting increased demand for improved taste.

These developments dominate our thinking and influence our store designs, our ranging, and our marketing, as we constantly strive to satisfy our customers.