Woolworths Sees Food Growth With Higher Earning Australians

  • South African retailer seeks to target wealthier shoppers
  • Food accounts for 22% of Woolworths' operating profit

Discerning Australian food shoppers are a source of untapped potential, according to Woolworths Holdings Ltd. Chief Executive Officer Ian Moir.

Woolworths, the South African owner of David Jones department stores, plans to invest in its food range in Australia, Moir told reporters in Johannesburg on Tuesday, adding organic produce and other pricier items that could appeal to higher earners.

“There is a gap in the Australian food market that no-one is entering,” Moir said. Woolworths isn’t trying to be the country’s biggest supermarket, rather one of quality, he said.

After buying David Jones for about $2 billion in 2014, Woolworths now gets about 43 percent of operating profit from Australasia. The Cape Town-based company is seeking to lessen its reliance on South Africa, where it has focused on increasing its free-range meat and organic range as well as foods with fewer preservatives and colorants.

“Woolworths is seeking to carve out a niche for themselves in the high-end food business in Australia, where margins are better and competition is not fierce,” said Kyle Rollinson, an analyst at Avior Capital Markets in Johannesburg. “The Australian food market is a massive opportunity and I’ve no doubt that Australian customers will readily latch on to high-end food products.”

Woolworths’ food business accounts for 22 percent of operating profit, with almost all of that from South Africa. If done well, the Australian food business could become just as big, Moir said, without saying how long this may take.

The retailer’s main challenge will be to secure quality food suppliers, Rollinson said. This means that Woolworths may start testing food stores in Australia in the next 18 months. “Until now, food has not been the focus of the business there,” he said.

Woolworths shares declined 2.2 percent to 87.13 rand as of 3:02 p.m. in Johannesburg, extending this year’s decline to 13 percent. That compares with a 9.7 percent drop in the FTSE/JSE Africa General Retailers Index and values the company at 83.6 billion rand ($5.3 billion).

“The David Jones food offering is not good enough,” Moir said. “But but we can do it. We can build a supply chain relatively quickly.”

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