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Growth in Woolies Food division slows

Group’s overall half-year performance also significantly affected by Australia’s prolonged Covid-19 lockdown restrictions and South Africa’s July riots.
The half-year trading update indicates that Woolies Food is having a bad half, with sales performance dropping below its fashion, beauty and homeware business. Image: Supplied

Despite traditionally being the group’s most resilient and best performing division, the food unit of JSE-listed Woolworths has shown a material slowdown in growth.

This is revealed in Woolworths’s latest trading update for the 26 weeks ended December 2021, published on Thursday morning.

The retail company is best known for its food segment in South Africa, which, until now, has been its star performer. However, its latest half-year turnover and sales figures show that the group’s historically poor-performing fashion, beauty and homeware (FBH) business has managed to grow faster than  Woolies Food.

In the period under review, the food business managed to grow turnover and sales by only 3.8%, while FBH saw turnover and sales growth of 4.2% and 4.7% respectively.

It is worth noting that in a similar timed trading update last year, Woolworths had reported that its food division showed double-digit sales growth of 12%.

Read: Checkers challenges Woolies head-on in convenience space

Despite the worrying signs of a performance downturn, veteran retail analyst Syd Vianello says to get the full picture of Woolworths’ recent performance update, one needs to consider it against that of its competitors.

He notes that even though Woolworths’ food business saw higher growth in the last six weeks of the period, the retailer’s overall performance is relatively poor.

“One needs an update from the Shoprite Group before one can draw the conclusion as to how good or bad the food business was,” Vianello tells Moneyweb.

“Even with the slight improvement in the last six weeks, compared with their competitors I  think the figure that you’re going to see is pretty poor, and it’s clear that they are losing market share because their competitors – particularly Shoprite/Checkers – are performing better than they are,” he adds.

Listen: Woolies, Spar taking strain, while Shoprite has the winning formula

A looming profit slump

Woolworths warned in its trading update that it expects to see its headline earnings per share (Heps) for the period plunging by between 30% and 40% (156.7 cents to 182.8 cents).

In November the retailer did warn that a profit slump of more than 20% was on the cards for the current period.

The group reported that its turnover and sales for the period declined by 2.1%, despite significant online sales growth of 22.4%.

Extended lockdowns in Australia as well as the destructive July civil unrest which took place in parts of Gauteng and KwaZulu-Natal (KZN), contributed significantly to the group’s overall trading performance.

As a result of the prolonged lockdown, the group’s Australian business remains under pressure with its David Jones division reporting a 9.2% decline in turnover and a 9% decline in sales for the period. The Country Road brand also saw a decline in sales, albeit at a slower rate of -3.2%.

Australian business woes 

“Trade was significantly impacted by government-enforced restrictions across the region, where we were unable to trade in stores representing 70% of our brick-and-mortar sales base during the lockdown period,” the group said.

Woolworths did however see a notable 44.2% increase in online sales at David Jones, while online sales at Country Road was up marginally by 3.6%. The online sales growth in its Australian business was still not enough to recover from the group’s overall sales decline there.

Read: EXCLUSIVE: Exit Aus and list Woolworths Food separately, say top retail analysts

While acknowledging the trading difficulties Woolworths had to deal with in Australia, Vianello says that the group’s inability to increase online sales more drastically – to help in supporting the shortfall in sales caused by lockdown-induced store closures – is a sign of bigger fundamental problems for the group’s business model in the country.

“I think there are still fundamental issues with the David Jones model and I think there’s a lot of work still to be done there to get it right,” he said.

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Woolies Food Division is currently under intense pressure from the Competition who have upped their game to appeal to the top end consumer. Whether the Competition can keep at it remains to be seen. Woolies Foods still provides top quality merchandise, great service and is still more ecologically sound than the competition, so should manage to hold its possession as the leader in the field of high end consumables.

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