Tale of the ticker tape: How Woolworths’ recent performance follows its revolving agency issues

woolworths cheap cheapAs Woolworths beds in its third new creative agency in five years Simon Canning looks at the correlation between the marketing flux and underperformance of the supermarket chain.

Woolworths’ decision to sack its third agency in five years signals a crisis point in the future of the retailer which, while it remains dominant by virtue of its scale, is struggling to maintain brand equity and public support.

There is a curious correlation between Woolworths’ market performance and its revolving door of agencies over the past five years.

The move by Woolworths back to M&C Saatchi – five years after the retailer abandoned the agency in favour of the then hotshop Droga5 – will be, in the words of one observer, like slipping on a pair of comfortable and reliable old boots. It’s a brand M&C knows all too well.

M&C was the Woolworths agency of choice for a decade from 2001, when it first bagged the business with its fresh approach to the retail category under the guidance of Luke Dunkerley – who was later poached from STW to head marketing at Woolies.

While there have been a range of  other pressures on Woolworths’ share price, including the disastrous launch of Masters, the advertising story has pegged the market performance closely.

Woolworths share price 2001-2016

Woolworths share price 2001-2016 (Click to enlarge)

For the first several years at M&C its share price (ASX:WOW) climbed steadily higher under the Fresh Food People banner. By mid-2007 the price had topped out at $36 and then slipped back to trade consistently in the low to mid $20 range as Coles began to make inroads on its share.

Spooked, Woolworths made the call and appointed the emerging Droga5 to the business in early 2012. It should have been the beginning of a creative renaissance for the brand.

By the time the first Droga campaign hit the airwaves the share price was on the rise and continued consistent growth, reaching $37. But even as the agency tried to push a consistent approach, the retailer pushed back on its agency trying to counter Coles’ ‘Down Down’ strategy with its own price approach.

However – almost to the day that Leo Burnett was announced a surprise winner of the business in April 2014- the shares again began to slide, and were trading at just $24 when the news broke that Leo Burnett had been dumped after just two years – having dabbled with a succession of price and product strategies.

Despite the fluctuating share price the comparable sales results for the supermarket and liquor division of the brand for the last five financial years have remained relatively stable.

mc_coles_logo_800x246-234x72In the 2011 financial year the Australian food and liquor division’s earnings rose 4.3%, although it stalled to just 1.1% for 2012 as the brand parted ways with M&C.

In its first year under Droga5 in 2013 sales were up 2.3%, and in 2014 they rose again by 3%, as Droga was dumped for Leo Burnett. And under Leos in 2015 sales still climbed 2.3%.

The problem is that in 2014 Coles recorded a 4.7% growth in food and liquor sales, rising to 5.3% growth in 2015.

Former Coles marketer Tony Phillips departed abruptly last year

Former Coles marketer Tony Phillips departed Woolies abruptly last year

Internally the marketing seat has had more bums on it that a general admission seat at the cinema, with Andrew Hicks, who has overseen the marketing of liquor brand Dan Murphy’s, the latest to take the tiller full time after the abrupt departure of former Cole Marketer Tony Phillips last year.

At so many levels Woolworths is fast becoming a marketing cliche.

Retail analyst Barry Urquhart of Marketing Focus said the challenge for the new agency was a simple one. Control the arrogance of Woolworths as a brand that believes it knows the answers, and refocus the brand to create clarity for what it stands for in the minds of consumers.

“If you look at the brand in 1988 they were in trouble,” Urquhart said.

“They had 17 per cent market share when they brought in Fresh Food People. They wanted to own fresh and under that focus they had the territory to themselves and grew to 43%.”

While Coles’ push into cheaper prices with ‘Down, Down’ helped to strengthen that brand, he said the introduction of “Cheap, Cheap” served only to confuse consumers who had already been schooled by the brand to expect “lower prices everyday”.

ALDIAt the same time, it ironically served the purpose of Aldi, which has managed to capture the concept of being the cheapest offer in the market in the minds of shoppers.

The fractured relationship with consumers was further damaged as Woolworths ran a damaging Anzac Day campaign, ‘Fresh in our memories’ and then outraged it’s loyalty card holders when it dumped Qantas Frequent Flyer points from the program.

It then alienated fresh food fans with an ad featuring Michelle Bridges calling people who grow their own vegetables “freaks”.

“People no longer know what Woolworths stands for,” Urquhart warned. “The new agency needs to get them back to a singular focus.”

From 2014 to 2015 Roy Morgan reported that Woolworths’ market share dropped 2.3 per cent to 37.6 while Coles lifted to 32.3 per cent and Aldi rose to 11.8 per cent.

How it came to this is hard to fathom, but insiders who have worked on the business highlight a reticence to follow the advice of their agencies and an ingrained insecurity in stepping away from marketing on price rather than giving consumers a purpose.

With a revolving door of marketers, dealing with Woolworths became a toxic undertaking for agency staff. It’s an issue that new marketing boss Hicks will have to address as part of his remit.

Regardless of its treatment of its previous two agencies the move to M&C represents the chance to press the reset button for the brand.

For starters it has the retail chops, and will it gives some jobs to staff who might otherwise have departed after its retail work on the Optus account was handed to Big Red.

With the scale to handle the business M&C ticks one of the boxes that was always a question mark in the minds of some at Droga5, which had to expand rapidly to handle the marketing machine’s fast-turnover retail work. The reality was once the agency got up to speed with the business, scale was not an issue.

Back on the Woolies account: Andy DiLallo

Back on the Woolies account: Andy DiLallo

What M&C also boasts is staff who worked on the account when its made its first journey through the agency, key staff who help build a successful run at Droga5 including strategy director Justin Graham, and a creative director in Andy DiLallo who learned the business at Leo Burnett before being lured across to M&C.

It is thought DiLallo never got the latitude he had hoped for to help transform the brand at Leo Burnett, and it will be interesting to see if he is given more of an opportunity at M&C.

Regardless of the direction that M&C chooses in terms of strategy, the retailer now has an agency that has the ability to demand it follow its advice – something that Woolworths failed to do at either Leo Burnett or Droga5.

If it is given the control, M&C has the track record of success in building the consistency Woolworths so desperately needs. It took the fractured brand that was The Commonwealth Bank and united it once again under the banner of ‘Can’, while the rock solid positioning of Optus with ‘Yes’ are just two examples

Urquhart has little doubt what the outcome will be if the agency cannot get the client’s focus back on basics and give consumers a message they can embrace.

“It mirrors Myer,” he said of the brand which has seen its share price descend steadily over the past several years as it wrestled with its model and image.

There is much that will influence Woolworths share price in the future, just as it has in the past. But its tracking of the retailer’s agency relationships over the past several years and the various marketing strategies adopted has been uncanny.

If M&C can make it work, the ASX may be the measure of its success – if, of course, Woolworths can sit still for long enough.

Simon Canning

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