Grant O’Brien – CEO Woolworths Limited
Speech to the QUT Business Leaders’ Forum
Hilton Brisbane – 21 February 2013
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Thank you, Kerry, for that introduction. To Professor Robina Xavier, thank you for hosting me at
this prestigious forum and the opportunity to join the list of very notable speakers who have
addressed you in the past. I am very flattered to be asked and I look forward to taking some
questions from you later.
What I’m a bit more anxious about is being subject to the infamous Kerry O’Brien blowtorch
after my speech. Unfortunately Kerry and I are not related - he comes from the rowdy branch of
the O’Brien family hailing out of Brisbane while I’m from the more reserved Tasmanian bred
O’Brien. That probably explains why he is in the media and I am the grocer. However, I’m
hoping that a family link, no matter how tenuous, might serve me well today.
I am also very pleased to be here at the invitation of QUT, an institution which Woolworths has
developed some very close relationships with over the past few years. In May last year we were
pleased to announce that Woolworths will invest nearly $1 million to fund research into
innovation in retail. The investment is funding a Chair of Retail Innovation, Professor Jan Recker.
We consider QUT’s Information Systems School as a leading research institute for this space, and
we are very pleased to be forging this type of partnership. I personally am really excited by the
potential learnings and changes that this research will generate for the benefit of Woolworths
customers.
The reason why I am excited is because I see this as the dawn of yet another era for Woolworths.
It is an era where innovation will be a critical factor for success.
My retail career started 25 years ago when I worked as a night filler in Hobart while I was
studying accountancy. Yes – a Tasmanian and an accountant… please I’ve heard most of the
jokes.
But like so many others who are in senior roles across our businesses, I started in the company
on the shop floor. And like the 6,789 people who have been with our business for 25 years or
more, I have seen how fast and dramatic each new era can sweep through our sector.
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Media Release
Professor Recker’s work will focus particularly on people, process and technology, and aims to
improve the experience of customers as they go about their supermarket shopping. Three initial
research streams will investigate:
1. the reason fresh food operations were more successful in some stores than others,
2. better methods of shelf restocking,
3. and store design principles for the retail experience of the future.
Through this change, Woolworths has provided me, and plenty of others, with the opportunities
for development, innovation and growth. However, the environment in which we operate today
is more dynamic than ever before and changing incredibly fast.
The task of transforming our business to meet the needs of the customer of the future is not an
insignificant one. We have a lot to be proud of and we have a fine history, but my eyes are
firmly focussed on the future – a future being shaped by our customers, not by Woolworths.
History counts for very little for those who don’t change and adapt. In 1986, Woolworths as a
company was in such bad shape that it was unable to pay a dividend to shareholders and in 1989
the company was acquired by IEL and delisted from the Australian Stock Exchange. After a
period of intense reform and refocus, Woolworths Limited was re-floated in what was the
largest share float in Australia’s history. That was 20 years ago.
With the re-float, Woolworths then embarked upon a transformational change which was
groundbreaking work to improve efficiency, eliminate waste and duplication. This task - dubbed
Project Refresh internally - was led by an innovative team who understood they had a
responsibility to get it right.
Importantly, from the Board down, there was the will to make bold decisions and the investment
that would massively transform the company and would deliver in spades into the future. Back
then, we needed to do things differently – but do it ourselves, and not wait until others were
doing it for us.
What Project Refresh did was reorganise the business from a collection of state-based
businesses to a national business, benchmarked against the very best global retail practices. We
had teams work with the world’s finest, from WalMart to Tesco, to select the best new systems,
the most effective structure, and build the best logistics infrastructure in the world at the time.
These were quantum steps forward, as this investment really catapulted us into a new era of
operational excellence and efficiency. This innovative new business model drove business
growth through higher volume and low prices first, profits second. It was a case of taking a
chance and doing things differently.
Joining the business in 1987 allowed me to see change first hand, and it was a masterclass in
leadership. Leaders like Paul Simons and Roger Corbett transformed our business. Throughout
that period and on a daily basis, I remember these CEOs as leaders who personally demonstrated
the values that they were driving through our company to create daylight between ourselves
and our competitors.
Paul Simons was famous for his cigarette paper notes left on buyer’s desks about value.
Roger Corbett empowered our store managers to drive the business and ensure head office was
always the support office.
They tore down the barriers for change and they delivered on a plan to innovate and improve.
We started selling quality fresh foods, we got out of our traditional Variety stores, we listened to
the customer and changed how we went to market.
Of course nothing stands still, and certainly not in an industry like retail. Despite the hard work
of previous leaders, a lot more has changed in 20 years.
While I have stewardship of a big and successful Australian business, I am not a caretaker. I see
my job as being a catalyst for a new era of change, and challenging what might be perhaps our
entrenched ways of doing things.
I am reminded daily that our past credentials are no free ticket to future success. Indeed our
past successes, I believe, have masked the serious undercurrents which exist in our primary
market today.
Quite simply, it was clear we will not survive in the new reality of retail unless we take the clear
new customer trends and preferences seriously and change. All of our businesses are
domestically based with an Australian cost structure and compliance controls, but participating
in a globalised market. That is why I am driving an agenda of innovation and transformation.
More than ever, food and grocery retailing in Australia is a highly competitive and fragmented
market, and we have little protection from failure if we rely simply on our current form.
Never before has the customer been in such control of the future, or come equipped with a
whole new set of perceptions about price, range, quality and convenience. Let me explain.
Our customers are not mortgaged to any single retailer. There are no switching costs for retail
customers who are unhappy with price, service, or range. In fact, according to Nielsen surveys,
over a 12 month period, 97% of Australians switch between the major four supermarket chains Woolworths, Coles, IGA and ALDI. In contrast, just 5% of Australians change banks every year,
and just 21% change telco providers.
So as you would expect, we need to work very hard – and sometimes attract a lot of criticism
along the way – to keep prices low and deliver on our promise to the 24 million customers who
choose to walk through our doors every week. We do that because we know that customers will
switch retailers for as little as a 5% price difference. There are plenty of competitors lining up to
offer the price competition online, or through a no-frills offer.
Across a month, when you look further at data from Nielsen, 64% of Australians do their food
and grocery shopping across all the major supermarkets and speciality stores. In the same
surveys, just 7% of customers did all their shopping with Woolworths. If you think about your
own shopping habits, you too may find some familiarity with these facts.
For a start, a traditional large weekly shop at one store is now the exception rather than the
norm. Today, less than 10% of the sales in our stores are for baskets of more than $100. Nearly
a third of the people passing through our checkouts are spending less than $10 in a transaction.
And customers on average are now visiting our stores at least 2.5 times per week.
So the supermarket is becoming much more a convenience store, almost a like a pantry for very
busy people. These trends explain why self-serve checkouts and ready meals are in much higher
demand than ever before.
So with these fundamental changes happening, how are we demonstrating leadership through
innovation?
My first step 16 months ago was to re-orientate the business to the customer. I know that
should be a fundamental of any service industry, but it’s a fact that a focus on efficiency and
operational excellence can often relegate the customer to a lower priority.
Woolworths now has a wonderful and rich base of customer data from our Everyday Rewards
program that we can access to better understand key customer trends, both on a macro and
micro level. Investing in, researching and translating that customer data will be critical for
tailoring our offer.
Using that data smartly means the customer is directly shaping our business. It also means we
are making smarter investments in store formats, and in other platforms to serve customers
both online and in-store.
And as we look into the future, we are innovating with systems that will really empower our
customers with what they want, including the information and insight which they demand. I am
excited by some of the opportunities I see ahead.
Concepts like multi-media platforms which allow a customer to journey all the way back to the
farm where their product came from. Either online or through a QR code in store, shoppers can
meet the farmer and see the provenance of their products. We are re-configuring our business
so that it is a dynamic platform, adaptable for now and for the future.
Woolworths is also investing in the amazing opportunities which multi-option retail are bringing.
Multi–option retail is where the customer shops when, where and how they want, radically
transforming the market. Mobile phone and iPad apps, click and collect, pay wave – all are
terms and technology that barely existed in 2007, but are now fundamental to our offer. In just
18 months, more than two million of our customers have downloaded a Woolworths app and
changed how they shop.
But we must do even more if we are to satisfy the Australian appetite for online shopping. The
least of which is our ability to be competitive on a global stage. The fact is we are seeking
success by adapting to an unlevel playing field.
Global players whose scale and buying power dwarf Woolworths are here and growing.
Customers are not waiting for the store to arrive here either from UK, Europe of the USA – they
are already shopping them online from home. I accept that.
There are actually low barriers to entry now into the Australian retail market.
Our relatively small nation has been transformed with the arrival of the German discounter ALDI
who are now a firmly established third force. It might surprise you to learn that ALDI have nearly
300 stores on the East Coast of Australia. If you live in Sydney, there is an ALDI store within a
3km radius of anywhere. Brisbane is growing just as fast.
Globally ALDI are a significant player - the tenth largest retailer. Domestically they have used
their global sourcing and brought a whole new level of competition and change to our market.
We welcome the competition, we always have. I argue that as these new competitors
transform our market, we should be allowed to meet it.
95% of the ALDI offer is low-cost private label and it has radically changed customers’ perception
of value and brand loyalty. Woolworths, in contrast, has just 6% of its range as private label.
When there are calls for regulating choice in a supermarket, I really start to wonder where the
Australian consumer’s interests are being prioritised.
Since the last formal ACCC grocery inquiry five years ago, the supermarket sector has seen
massive change. Price deflation, changing shopping preferences, the entry of new and strong
global competitors, and digital transformation, are all challenging our business from the ground
up.
You might dismiss this and think I would get a head start when leading a company like
Woolworths because there is a strong history of overcoming change. And yes, it certainly does
help to have a strong sense of who we are as a company and to understand what our customer
and shareholders expect of us.
However, I’m not comfortable with getting along like we always have. It requires me to ensure
that the team know they have to push beyond good and deliver the best they can, every day –
the best range, the best customer service, the best place to work.
In 1924, when a Sydney businessman called Percy Christmas joined with other investors and
created Woolworths, his mission was a simple one: he wanted to provide Australians with ‘a
handy place where good things are cheap’.
I think that mission remains true to Woolworths today, but in what is a vastly different market
for retail. ‘A handy place where good things are cheap’. It’s an enduring mission we still strive
for.
‘A handy place’ today is meeting the modern convenience – it is a big store, a small store, or a
mobile phone. It’s a shopping app, a price checker, or a quick self service checkout.
‘Good things’ are the range of quality goods – today that means both branded products and a
range of private label.
And ‘cheap’ – means what it always has: a sense of real value, but now with the ability to see
that value on a global scale.
The Woolworths of the future is transforming right now to be will be a very different company
than in the past, because retail is a very different industry playing on an increasing unlevel
playing field.
It will remain exciting, innovative, challenging and most of all changing. And I for one would not
want to be in any other business.
Thank you.
ENDS