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Woolworths' new chief launches review
A holy war has erupted in Australia's grocery sector as Coles and Woolworths slug it out over grocery's glittering new prize: Sunday trade.
If you work or have a family, there is a good chance you do a grocery shop on a Sunday and as such you have become grocery's most valuable customers.
The "big basket" customers are known inside Woolworths as "premium shoppers". And with the supermarket giant's food and liquor sales still falling, it's desperate to claw back these big-spenders from rivals Coles and Aldi.
Woolworths is investing about $75 million in the current half-yearly period to boost staffing levels on the weekends and fund its loyalty scheme. But analysts warn these high-value shoppers are also high maintenance and they won't return to Woolworths until it fixes fundamental frustrations like long checkout queues and empty shelves.
JP Morgan analyst, Shaun Cousins said service improvements were the key to breaking the bonds of customer loyalty with Coles or Aldi.
"Our view is service is a really significant area that Woolworths needs to improve, it's vital to wining back that premium customer," Mr Cousins said.
At its half-year result, Woolworths claimed it had already won back the budget shoppers but the lucrative premium customer was proving more elusive.
"Premium customers aren't going to stand in line for 10 minutes or put up with stock-outs on items that are on promotion," one source said.
"So much of this is Woolworths [operating] in a competitive environment that's really bad ... but it's also about executing on some self help.
"If you say you're going to have baked beans on sale, have it in stock and if that product sells very well make sure you get it back on the shelf."
There was no evidence of the long-awaited turn around in Woolworths' fortunes in its third-quarter sales result this week, with growth reversing for the fourth consecutive quarter and no expectation of a return to positive growth numbers before 2017.
It's a major headache that Woolworths' chief Brad Banducci is spending $150 million in the next half to try to fix. Sources close to the chain suggest a big chunk of this is to fund more staff as well as match any major promotions out of Coles.
Mr Banducci revealed Sundays were Woolworths' "biggest growth day" and supermarket insiders suggest he's prepared to "over-staff" the weekends in the short term as it rebalances staffing levels across the week to reflect the importance of Sunday trade.
Analyst David Errington said skeleton staffing on Sundays was a legacy of Woolworths' former management and illustrated how profits were prioritised over the performance of the supermarket business.
"It was part of their cost reductions, they cut staff and they hit the highest cost days, so they took labour out of the weekends," Mr Errington said in a research note.
While Woolworths cut corners to protect profits, Coles recruited its weekend shoppers and Sunday is now the biggest trading day of the week for the Wesfarmers-owned chain. And it's not taking its foot off the accelerator, launching a fresh price assault focused on the $400 million women's sanitary product market this week.
Busy lifestyles, working mums, Saturday sport are the key factors driving the swift trade at Australia's supermarkets on Sundays, but retail analysts claim it also reflects a shift towards more frequent shops as consumers take advantage of deregulated trading hours to abandon the once-a-week shop.
It's a tricky trend for supermarkets because more frequent shops tend to lead to more "leakage" or shopping with independent specialists like bakers and butchers.
However, potential changes to penalty rates on Sundays could eventually cut the major supermarket's wage bill, potentially setting the stage for deeper price cuts and opening a new front in the rolling price war.
Fair Work Australia is expected to hand down its decision on penalty rates by August at the latest and Australian Retailers Association executive director Russell Zimmerman said the case had implications for every retail business, regardless of whether it operated under an award or an enterprise agreement, as is the case for Coles, Woolworths and Aldi.
The unions are fiercely opposed to any such change, which would bring Sunday rates in line with Saturday for businesses in hospitality and retail.