KEY POINTS:
Tough negotiating with its staff and suppliers has allowed Woolworths in New Zealand to cut prices to boost market share, although not yet its profit, the giant Australian retailer said in reporting its first half sales yesterday.
The company's New Zealand supermarkets business grew 155.3 per cent to A$1.99 billion ($2.23 billion), although that figure was distorted by the timing of its purchase of Progressive Enterprises in November 2005.
It bought Progressive - owner of Countdown, Woolworths New Zealand and Foodtown chains - for $2.6 billion.
Comparable New Zealand sales for the first quarter were up 1.9 per cent and for the second quarter were up 3.8 per cent, but these were hit by an industrial dispute in the first quarter that affected the second quarter.
It lost market share to rival Foodstuffs during the strike, but chief executive Michael Luscombe said by December that had been recovered in volume terms, if not in value.
He said Woolworths' renegotiation of prices with suppliers to the New Zealand stores had allowed it to improve margins which the company had "reinvested" by cutting prices.
Luscombe said when Woolworths bought Progressive there had been a "very large gap" between its prices and Foodstuffs', which runs the New World, Pak n' Save and Four Square chains.
The Woolworths stores had had to cut prices significantly just to get near Foodstuffs' prices.
Overall inflation in Woolworths New Zealand stores had been just 1 per cent compared with generalised food price inflation of 2 to 3 per cent.
Luscombe said Foodstuffs had responded quickly "like a good competitor" but because of its price advantage it did not have to cut so aggressively. Woolworths was not seeking further changes in price relativities.
"We are not looking for a price war."
He said the initiative in December to give Woolworths' customers a petrol discount at Shell and Gull stations had generally positive results, even though Foodstuffs had quickly matched its move in a deal with BP.
The price battle has spilled over into a fight for control of New Zealand's largest general merchandiser, The Warehouse. Both Woolworths and Foodstuffs have purchased a 10 per cent stake and applied to the Commerce Commission for full control.
The winner is seen to gain a crucial advantage in spreading their influence into general merchandise sales.
Woolworths reported that group sales rose 11.5 per cent in the six months to December 31.
Shares in Woolworths added 0.7 per cent to A$23.81, having climbed 2.5 per cent yesterday on hopes of strong sales.
Luscombe said the group outlook was positive for the second half.
"Provided current retail trading pattern and the present business, competitive and economic climate continue, we expect sales from the continuing operations for the full year to grow in the region of 8 per cent to 12 per cent," he said.
The guidance is a restatement of the sales outlook the company gave last year.
The company's supermarket division posted sales growth of 16.7 per cent to A$18.84 billion in the half year.
- NZPA
