{"id":818687,"date":"2025-03-31T17:00:00","date_gmt":"2025-03-31T15:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=818687"},"modified":"2025-03-31T17:00:49","modified_gmt":"2025-03-31T15:00:49","slug":"woolworths-under-siege","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/business\/818687\/woolworths-under-siege\/","title":{"rendered":"Woolworths under siege"},"content":{"rendered":"\n

Woolworths is in a tough spot. Its high-end food business faces increasing competition, and its clothing business continues struggling.<\/p>\n\n\n\n

Woolworths’ financial results for the 26 weeks ended 29 December 2024 showed that its fashion, beauty, and home (FBH) business is still a mess.<\/p>\n\n\n\n

This segment reported turnover growth of only 2%, well below inflation. It blamed a temporary setback in product flow and late supplier deliveries for the poor performance.<\/p>\n\n\n\n

However, the poor performance of the fashion, beauty, and home business is nothing strange. It has been a drag on the retailer for years.<\/p>\n\n\n\n

Besides failing to compete effectively against other South African clothing retailers, Woolworths also had a disastrous international play.<\/p>\n\n\n\n

In 2015, it invested around R29 billion in David Jones, entirely funded by debt. The investment was a colossal failure.<\/p>\n\n\n\n

After years of disappointing performances, Woolworths sold David Jones for around R1.6 billion, a tremendous loss.<\/p>\n\n\n\n

It kept the Country Road business, but, like David Jones, it is also causing tremendous pain for the South African retailer.<\/p>\n\n\n\n

It has reached such critical levels that the Country Road Group is undergoing significant restructuring to reconfigure its operating model and reset its structural economics.<\/p>\n\n\n\n

Woolworths Food has been the feather in the retailer\u2019s cap for years, but it no longer has the luxury of a near monopoly in the high-end food market.<\/p>\n\n\n\n

In the latest results, Woolworths Food performed well, reporting 11.4% turnover growth and an improved gross profit margin of 24.9%.<\/p>\n\n\n\n

Its on-demand grocery delivery service, Woolies Dash, saw sales increase by 49.2% and online food sales rise by 37.2%.<\/p>\n\n\n\n

However, analysing the performance over five years showed a concerning trend for the high-end food retailer.<\/p>\n\n\n\n

Woolworths Food’s average annual revenue growth has been 7.2% over the past five years, measured in six-month intervals.<\/p>\n\n\n\n

Although this revenue growth is well above inflation, Woolworths Food has seen a steady deterioration in its profitability.<\/p>\n\n\n\n

Woolworths Food achieved an average annual profit before tax growth of only 2.7%, and its profit before tax margin steadily reduced from 7.5% to 6.3% over 5 years.<\/p>\n\n\n\n

Woolworths Food increased its revenue by 49% over the past 5 years from R16.6 billion to R25 billion.<\/p>\n\n\n\n

Over the same period, it has only been able to increase its profit before tax by 25%, from R1.3 billion to R1.6 billion.<\/p>\n\n\n\n

The declining profit margin showed that Woolworths Food has not been able to manage its expenses in line with its revenue growth.<\/p>\n\n\n\n

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\"\"<\/a><\/figure>\n\n\n\n

Increased competition puts pressure on Woolworths Food<\/strong><\/h2>\n\n\n\n

One reason for Woolworths Food\u2019s margin pressure is increased competition in South Africa\u2019s high-end food market.<\/p>\n\n\n\n

Checkers, Pick n Pay, and Spar have launched stores which compete directly with Woolworths Food in the affluent market.<\/p>\n\n\n\n

Checkers Sixty60 has already hurt Woolworths Food, and Checkers is also revamping many of its stores to appeal to wealthier clients.<\/p>\n\n\n\n

Last month, Spar Southern Africa chief executive Max Oliva revealed that the company will roll out 30 to 40 high-end grocery stores.<\/p>\n\n\n\n

The first high-end Spar store, Spar Gourmet, will open in South Africa in the fourth quarter of 2025.<\/p>\n\n\n\n

Oliva said they are looking at high-end residential and urban neighbourhood sites and that the stores will offer a standardised design and brand philosophy.<\/p>\n\n\n\n

Through the Private Label Spar Signature Selection range and strategic partners, it will offer differentiated product ranges and bespoke offerings.<\/p>\n\n\n\n

One of these partners will be Vida e Caffe, which will have a presence in all of SPAR\u2019s Gourmet stores.<\/p>\n\n\n\n

Pick n Pay is also investing in improving its stores with refreshed formats, including improved layouts, more tailored product selections, and intensive staff training.<\/p>\n\n\n\n

As part of these initiatives, Pick n Pay opened a new supermarket at Westown Square, a mixed-use development in Shongweni, KwaZulu-Natal.<\/p>\n\n\n\n

\u201cThe new store introduces key features that Pick n Pay is incorporating into its refreshed store format, aimed at enhancing the customer experience,\u201d it said.<\/p>\n\n\n\n

The new store format includes a vibrant fresh produce area, a full-service butchery, and a deli with fresh, ready-to-enjoy meals, salads, and convenient on-the-go options.<\/p>\n\n\n\n

This store\u2019s in-store bakery offers artisan breads, pastries, and cakes baked daily. It also has a sushi counter and a sit-down coffee bar.<\/p>\n\n\n\n

The retailer further strengthened its customer partnerships, which include becoming the primary grocery partner for FNB\u2019s eBucks programme.<\/p>\n\n\n\n

This means that Woolworths\u2019 premium division, its food business, is facing increased competition and will struggle to maintain its market share.<\/p>\n\n\n\n

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Pick n Pay at Westown Square Mall<\/figcaption><\/figure>\n\n\n\n
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Spar Gourmet Plan<\/figcaption><\/figure>\n\n\n\n

Analyst opinions about Woolworths<\/strong><\/h2>\n\n\n\n

Woolworths\u2019 share price declined 23% over the last six months, and 15% year-to-date. This shows how much trust investors lost in the company.<\/p>\n\n\n\n

David Shapiro from Sasfin Securities said that Woolworths\u2019 results show many problems at the retailer.<\/p>\n\n\n\n

Grant Nader from Benguela Global Fund Managers said the Woolworths\u2019 food division is a good investment, but the rest of the company is problematic.<\/p>\n\n\n\n

He added that he is questioning Woolworths management’s execution to turn the company\u2019s clothing business around.<\/p>\n\n\n\n

Country Road is deteriorating as a brand and is underperforming its peer group in Australia. \u201cIt is tough in Australia, but Country Road is doing worse than the rest,\u201d he said.<\/p>\n\n\n\n

The promised turnaround in Woolworths\u2019 fashion, beauty, and home business did not materialise. \u201cOver the last two years, all we heard is why it was not happening,\u201d he said.<\/p>\n\n\n\n

Nader advised South African investors to sit on the sidelines until Woolworths\u2019 management team showed it could fix the problems.<\/p>\n\n\n\n

Ricus Reeders, a portfolio manager at PSG Wealth, explained that Woolworths had been outperforming its peers in the retail sector.<\/p>\n\n\n\n

\u201cThey have been promising to get their clothing business organised for a very long time. This did not happen,\u201d he said.<\/p>\n\n\n\n

The latest set of results showed that the clothing business is still struggling. \u201cThis is why Woolworths is underperforming,\u201d he said.<\/p>\n\n\n\n

Reeders said he does not see any reason to invest in Woolworths until there is clear evidence that the management team has turned the clothing business around.<\/p>\n\n\n\n

He added that while Woolworths Food is performing well, it faces increased competition from Checkers.<\/p>\n\n\n\n

He advised Woolworths shareholders to consider selling their stock and considering an alternative company like Pepkor or Mr Price.<\/p>\n\n\n\n

Zwelakhe Mnguni from Benguela Fund Managers also warned investors to be very cautious about investing in Woolworths.<\/p>\n\n\n\n

He highlighted that Woolworth\u2019s South African and Australian clothing businesses are underperforming.<\/p>\n\n\n\n

Mnguni said he would like to see a change in management or the disposal of the clothing business before investing in the retailer.<\/p>\n\n\n\n

\u201cI cannot see a way for Woolworths out of this problem. It has been a perennial underperformer,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"

Woolworths is in a tough spot. Its high-end food business faces increasing competition, and its clothing business continues to struggle.<\/p>\n","protected":false},"author":10,"featured_media":815441,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9872],"tags":[22037,4067,9838,22156,949,17353],"class_list":["post-818687","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-max-oliva","tag-pick-n-pay","tag-spar","tag-vida-e-caffe-2","tag-woolworths","tag-woolworths-food"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818687","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=818687"}],"version-history":[{"count":4,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818687\/revisions"}],"predecessor-version":[{"id":818978,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/818687\/revisions\/818978"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/815441"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=818687"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=818687"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=818687"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}