Woolworths reports 8.1% sales growth

Nick Miles
Head of Insight - Asia Pacific
@RetailAnalysis

Date : 27 August 2020

Woolworths has published its FY20 results for the year ending 28 June 2020, with group sales up 8.1% to AU$63,675m, but EBIT down 0.4% to AU$3,219m due to the impact of COVID-19 in H2.

‘Devastating impact of COVID-19’

In the second half of the year Woolworths' sales and EBIT were heavily influenced by the global pandemic. The shopping experience and sales patterns were particularly impacted in March and early April. Despite this, the retail business delivered strong sales-driven EBIT growth, while the closure of hotels in the last four months of the year led to a decline in EBIT year-on-year (Hotels EBIT declined 51.0% in FY20).  Australian Food incurred additional costs of AU$290m in H2 because of COVID-19, while New Zealand Food and Endeavour Drinks also saw costs rise by AU$65m and AU$13m, respectively.

Australian Food up 8.3% to AU$42,151m

Woolworths Food achieved LFL growth of 7.3% for the year and EBIT growth of 6.5%. Both total and LFL sales peaked in Q3 with double-digit growth (11.3% and 10.3%, respectively), while strong topline growth of 9.3% continued into Q4. This compared to 6.4% growth reported in H1 pre-COVID-19.

Customer numbers slowed throughout H2, with sales offset by larger basket spend, as shoppers both stocked up and increased their in-home consumption. Trade at Easter and Anzac Day were adversely impacted, with LFL transaction numbers down 11% year-on-year in Q4. Performance of stores in resort towns, city centres and major malls were softer, compared to neighbourhood-based stores. Metro Food Stores grew sales by 5.1% to AU$943m for the year, with strong performance in neighbourhood stores offsetting LFL sales declines of c.50% at CBD and transport hub locations in Q4. During the year, 27 net new stores opened (6 supermarkets and 21 Metro) and 69 stores were renewed.

Group online sales up 41.8% to AU$3,523m

Woolworths restructured its WooliesX function in FY20 to include three areas:

  • Digital & Media - demand generation, digital experience and Cartology
  • eCom & Fulfilment - eCommerce sales and services and order fulfilment services
  • Loyalty & FinTech - Everyday Rewards and Woolworths’ payments, gift card and insurance

Alongside this, COVID-19 led to a ‘step-change’ in traffic to its digital assets, ramping up from Q3 onwards. Despite initially having to suspend its grocery online services, the retailer recovered well, through doubling its capacity, scaling-up crowd-sourced delivery, introducing online delivery into 78 new stores and accelerating the roll out of contactless pick up to 86 locations. Online grocery sales grew 43.1% to AU$2,017m during the year, with growth of 69.0% in Q4.

Woolworths launched its first Everyday Rewards app in May, allowing customers to activate and access personalised specials in-store. The Woolworths app was also enhanced allowing users to access offers, their Reward points, track orders and select new payment solutions. Its Cartology digital media business rolled digital screens out to 957 stores and continues to help suppliers benefit from the group’s digital assets. Everyday Rewards membership grew to 12.3m, with new benefits and personalised offers helping in-store assosiated transactions growth of around 50%. Scan & Go trials are also now live in 17 stores.

New Zealand Food up 9.1% to NZ$7,192m

New Zealand Food achieved LFL growth of 8.9% for the year and EBIT growth of 10.7%. Sales significantly accelerated in H2, with growth of 13.7% and 13.9% in Q3 and Q4, Respectively. This compared to 4.8% growth reported in H1 pre-COVID-19. The retailer benefited from the strict lockdown measures in New Zealand, with only major supermarkets, pharmacies and convenience stores allowed to trade from long periods. Towards the end of Q4, LFL sales growth was moving back towards high single digits. Like in Australia, fewer customer numbers were offset by larger baskets. In Q4, LFL transactions were down 26.2%, but LFL items per basket up 38.5%.

Online sales grew 44.5% for the year. In Q4, online sales grew 74.8% and penetration reached a record high of 11.9% of sales. Countdown converted some existing stores into dedicated online hubs to boost capacity, while it also opened its first eStore in Auckland in April. It’s FreshChoice and SuperValue franchise stores also rolled out online to 58 stores. It opened two net new stores during the year, taking the network to 182 supermarkets and one eStore. Most stores converted to online hubs have now been converted back to standard stores.

Endeavour Drinks up 9.9% to AU$9,275m

Endeavour Drinks achieved LFL growth of 7.9% for the year and EBIT growth of 5.7%. Sales accelerated in Q3 and peaked in Q4, with growth of 23.2% due to the switch from out-for-home to in-home consumption because of government restrictions. The growth in demand started at the end of March and put significant pressure on both the retailer’s store and online operations. Additional online capacity, redeployment of hotel teams to stores, adjustments to supply agreements, expanded ranges from local suppliers and shortened payment terms for smaller suppliers were all tactics used. EndeavourX (online) sales grew 28.6% to AU$637m, with sales jumping by 47.8% in Q4 compared to the previous year.

For the year, Dan Murphy’s continued to focus on improving its in-store and digital experience, as well as localising its store ranges. Its My Dan’s loyalty scheme grew to 4.5m members, while contactless pick up was accelerated and now available in around 50% of stores. It opened 11 net new stores, including its new look store in Hawthown, Victoria and a smaller format in Elanora Heights, NSW.

BWS continue to enhance its estate, rolling out its renewal format to 94 stores and opening 23 net new stores during the year. It opened two new ‘Smart Stores’ in Millers Junction in Victoria and Paddington in NSW, as well as its first ‘Value Store’ with a focus on a more tailored range and stronger value-based offers in Mt Druitt, NSW. On Demand delivery is now available in over 950 stores, aided by a new BWS app that launched in September 2019, as well as its partnership with UberEats in Victoria. BWS online sales doubled in H2.

COVID-19 will continue to impact the year ahead…

Despite easing restrictions, Woolworths has continued to see volatile trading patterns, particularly in Victoria and parts of NSW. For the first eight weeks of FY21, group sales are up 12.9% (Australian Food +11.9%), with group online sales up a huge 84.6%. Woolworths has said the outlook is very difficult to predict, but we can expect the retailer to come up against some tough comparative trading periods as the year progresses.

Woolworths Group CEO, Brad Banducci, commented, “Our main priority for F21 is making COVIDSafe a part of everything we do. Unfortunately, we expect to be living and working with COVID for the foreseeable future. As a result, our focus on value, range and convenience will continue and we will not compromise on creating a COVIDSafe environment for all our customers and team."