Woolworths: Where did it go wrong?

Woolworths logoAustralia’s biggest supermarket is struggling. Steve Jones spoke to industry experts about how Woolworths’ marketing strategy has faltered, and whether the brand can revive its fortunes.

When Woolworths chief executive Grant O’Brien fell on his sword last month after another disappointing set of quarterly figures, it surprised no one.

Without a chief marketer following the abrupt departure of Tony Phillips – and with several other high profile executives exiting stage left in recent months – it was just another in a long line of senior level departures at the embattled supermarket.

According to industry observers the management upheaval is symptomatic of a business which has not only lost its way but one that is unable to find a solution to its decline in sales.

To add insult to injury, Woolworths is facing a threat to its market leading position in a sub-sector it has dominated for decades – fresh food.

As one brand consultant told Mumbrella:

It’s felt a bit like watching a boxing match. Woolworths clinging on without much of an idea how to fight back. And then it gets brutally clubbed to the canvas while already on its knees. It’s enough to make you want to look away.”

As sporting analogies go – and they are often used to describe the successes, or struggles in the commercial world – it is one few disagree with.

Already struggling to combat the rising threat of ALDI, bogged down by its ailing Masters division and consistently outperformed by Coles, the latter appeared to kick sand in its face by launching a blatant, and brazen play for the fresh food battleground Woolworths once ruled.

But while commentators believe the Coles Fresh campaign, produced by Ted Horton’s Big Red agency and fronted by Curtis Stone, clearly needs a response from Woolworths – and quickly – it is only one of several issues the supermarket needs to confront.


Opinion of where Woolworths has gone wrong is wide and varied, but a common thread is that it has lacked leadership, become reactionary and fundamentally appears unsure of what its strategy should be in the face of rising competition.

‘Cheap Cheap’

According to BrandMatters managing director Paul Nelson, Woolworths’ pursuit of value shoppers through the Leo Burnett-created Cheap Cheap campaign was flawed, despite conceding economic pressures have made shoppers increasingly price conscious.

“The market share sensitivity across retailers is omnipresent but it’s easy to exaggerate that and take your eye off the main game,” he said. “That is evidenced by what could be described as a crisis of confidence at Woolworths. They looked at the Coles strategy and thought; ‘if they’re doing Down Down, we’ll do Cheap Cheap’. That was flawed in our view.


“I think they have lost sight of the power that resides in the Woolworths brand and the work they have done previously with fresh food people. They need to talk about price but in a way that aligns back to the brand.

“They are reacting rather than acting proactively.”

Nelson suggested Woolworths should have stayed “true to its knitting” by building a proposition around fresh food “and how that is a benefit in the context of a tighter economic environment”.

“Instead they have charged forward thinking everyone is after the lowest price. Are they really?,” he said.

Pip Stocks, founder of brand research agency BrandHook, said Woolworths, has “lost its way”, partially a result of ALDI’s rapid growth.

Stocks agreed with Nelson’s assertion that Woolworths has seemingly lost confidence, evidence by an “uncertain and unclear” strategy which, she argued, has left shoppers equally puzzled.

“The strategy is not clear and consumers are not clear why they should be shopping at Woolworths,” she explained.

“ALDI has taken everyone by surprise; retailers didn’t expect them to do as well as they have. In addition to value shoppers, ALDI has also attracted a medium to affluent customer base and that in particular has taken Woolworths and Coles by surprise.”

Stocks said consumer confusion is based around Woolworths historical proposition as a “heritage brand offering quality” but one that is now pursuing a price-driven message in competition with Down Down.

It has now fallen between two stools, Stocks said, “and is neither one thing nor the other”, while ALDI has crystal clear strategy that is disrupting the status quo.

“In the grocery sector you need to be interesting or cheap. Woolies felt interesting but now they are trying to compete on price. It just feels like a no win strategy,” she said. “It doesn’t feel well thought through. You’ve only got to look at sales to know that it’s not working.”

Sales struggle

Looking at those sales figures of recent quarters referred to by Stocks, it is, indeed, hard to conclude that Cheap Cheap has been anything other than an abject failure.

In the third quarter of the last financial year Woolworths increased food and liquor sales by just 0.2 per cent, and a June market update pointed to the fourth quarter also being slow, down 0.7 per cent.

The removal of Tony Phillips, a decision that deeply wounded the former Coles marketer according to insiders, adds considerable weight to that assumption. Indeed, at its half year results earlier this year, Woolworths admitted its promotional programs “were not as successful as we expected”.

“While our ‘Cheap Cheap’ campaign has been well received by customers….we did not see the improvement in price perception we anticipated during the quarter,” the company said.

In short, it failed, and even if the writing was not quite on the wall for Phillips, the lid was coming off the pen.

Stocks suggested Woolworths became “scared” of the ALDI and Costco threat and their ability to take market share, but said the transition to “cheap” was unnecessary.

“Cheap is a valid strategy but it needs to be wrapped up in who you are as a brand. With ALDI it’s their positioning and one they have held strong to and delivered on. You have to live and breathe it. But that was never Woolworths’ positioning. It isn’t who they are and it isn’t what customers expect them to be.”


Sources with inside knowledge of the business were critical of Woolworths leadership in the boardroom – or absence of it – describing O’Brien as a decent man but one who was “old school” and “lacking inspiration”.

“Woolworths has been lacking a visionary leader, that has been a key issue for the business,” one source told Mumbrella, adding, crucially, that while the Cheap Cheap push gained early momentum, it stalled in part because of one fundamental problem – it wasn’t based on a customer reality.

“There was some early effect but ultimately the message had to be real and it wasn’t. If a customer spends $250 and after Cheap Cheap they look at their receipt and it still says $250, you have a problem.

“It’s no good cutting half a dozen products. If you do a price comparison Woolworths is still the most expensive and you know you can save a fortune by shopping at ALDI.”

To that end, Phillips, and Leo Burnett which won the Woolworths creative account early last year, were on a hiding to nothing.

‘Down Down’

Tony Phillips

Tony Phillips

Management was said to have become “starry eyed” with Phillips, such had been the success of Down Down and the highly successful One Direction campaign. But the adulation didn’t last long.

“Internally the board had spoken about Down Down and the One Direction campaign, which has been very successful, and they regarded Tony as the saviour,” one source said. “But to follow Down Down exactly down the same path was never going to work. You only get to have that success once with effectively the same campaign.”

Some within Woolworths also viewed Phillips as a good advertiser, rather than a marketing all-rounder .

“That said, the expectation at a very senior level was very high and I don’t know if any marketing director could have turned it around, not without the company’s help. They were too concerned with today’s sale with very little regard for brand equity. That is built over time and it doesn’t translate into sales in a week.”

But to blame marketing would simply be to shoot the messenger, according to Richard Curtis, chief executive of FutureBrand who said he was unconvinced Woolworths had the right ‘product’ for the market.

“Their promotional activity always seemed complicated and at times confusing, and there’s only so much ‘marketing’ can do to hit the mark if there isn’t the clarity and substance to support it,” he said. “In the meantime, Coles were very direct and disciplined, and Woolworths paid the price.”

Curtis also suggested Woolworths has been “caught out” by a “nostalgic sense of their brand equity”.

Richard Curtis

Richard Curtis

“They seemed to focus on re-creating their past successes rather than keeping pace with the changing dynamics of the marketplace,” he said. “Unfortunately, Woolworths have become uncompetitive in branding terms, caught in the middle without a clear sense of purpose.”

To compound its problems, Curtis predicted Woolworths will not only have Coles and ALDI to contend with in the budget battleground, but David Jones at the premium end, a reference to speculation that Woolworths Holdings, the South African owner of DJs, has appointed a general manager of foods to overhaul its food business.

Observers largely exonerated Leo Burnett’s of any blame, arguing they would have been presented with a fait accomplis by Phillips with very little room for manoeuvre.

“If there isn’t a sensible conversation in the boardroom about a longer term strategy, based on key understandings of the market segments, it’s tough,” Nelson said. “Marketing’s response to a demand for short term results is to go to their agency and say ‘guys, if you don’t deliver me something that the board will buy, I’ll get fired and guess what? You’ll follow me out of the door 30 seconds later’.

“The agency just doesn’t get the chance to say to the marketing director ‘mate, stop, let’s go back to marketing-first principles, let’s understand what our brand is and what it stands for’.

“The strategy requirements makes it really hard for agencies to push back.”

Business models

He added that while Coles has consistently and successfully made a virtue of brand ambassador Curtis Stone,  Woolworth seems to have underutilised its affiliation with British cook Jamie Oliver, despite fronting TVC promoting winter savings.


“Woolies has Jamie Oliver in its portfolio, and he seems like a good fit, but I’ll go back to that crisis of confidence in that they have said, ‘yes, we have Jamie but find me something that competes with Down Down and someone has walked in and said ‘we’ve got it, it’s Cheap Cheap.”

It is felt by some within the organisation that the root of the price issue has been an overwhelming desire of local supermarkets, Woolworths in particular, to cling to margins generally considered to be highest in the world in the sector.

But such margins are no longer sustainable in a competitive environment where international brands are bringing scale – and low prices – to Australian shores.

According to insiders, the board have brought the current predicament on themselves by failing to recognise the inevitable reality that such margins were unsustainable.

“Woolworths has a very old school style of management. The fact Woolworths has had a poor price perception has been well known internally yet they have been clinging on. It is one of the most profitable supermarkets in the world and that’s great for shareholders who have loved the returns. But the world has moved on. The margins they are enjoying are just not sustainable.”

There is certainly a view in the market that Woolworths has failed to sufficiently invest in store refurbishments with sources telling Mumbrella that 70 per cent of Coles stores have been upgraded over the past 10 years, compared to only a quarter of Woolworths locations.

Add to that the rapid decline in loyalty for both major supermarket chains – with estimates that as few as seven per cent of us are truly loyal to Coles or Woolies – it is little wonder that shoppers have drifted away.

Andrew WoodwardMarketing consultant Andrew Woodward agreed that loyalty has all-but vanished, and replaced to some degree by a cynicism among consumers who believe the big brands have squeezed suppliers in a bid to keep their own margins intact.

In addition, supermarkets have essentially become commodotised, he said, with Woolworths losing its “guiding light” of fresh food.

“For years Woolworths had etched into the minds of consumers that they were the fresh food people. The problem now is that everyone makes a virtue of fresh food. We are seeing the rise of farmer’s markets and the like and that has taken the competitive advantage away from Woolworths.

“Also, the Coles near where I live is turning into a gourmet restaurant, so that is Woolworths’ major competitor showing they make fresh food on the spot. Fresh food is where Woolworths won for so many years but they just don’t have that positioning anymore.”

Another brand and marketing expert with close ties to Woolworths told Mumbrella the board has been neither “impressive nor decisive” and has been too focused on feeding the profit-hungry mouths of shareholders and investors.

The “short term fix” to its problems of a price-driven marketing message was also incorrectly executed by a board who pinned their hopes on the Coles marketer who brought Down Down to the world.

“The board thought the man was the answer to the problems, but an individual is not the answer. A strategy is the answer and cost cutting is not a strategy.

“All the board did was nick someone from the other team who knows only one way of playing the game. Tony Phillips was just prescribed what the board thought needed to be done. He came in and replicated what he had done at Coles by cutting the guts out of the price. And there is a general feeling such a campaign would only work once.

“The market was persuaded it’s all about price. It’s not.

It wasn’t action, it was a reaction.”

Another marketing expert with knowledge of the business was adamant the supermarket should wrestle back control of fresh food, and do it quickly. Failure to do so would be “bordering on negligent”.

“If they let Coles grab fresh food from them it will be an absolute disaster. If they don’t defend the turf which they have held for 30 years what on earth is going to distinguish them in the supermarket wars?

“Of course everyone is into fresh whether it be Coles, Woolies or Harris Farm, but fresh isn’t the thing. It’s the ownership of it, and protection of it that is key.

“Woolworth in theory has the high ground but if they don’t defend it with determination then it won’t have been taken, they would have given it away.

“At the very least they should be pulling stuff out of the archives and blitzing it, saying ‘we are the fresh food people, you are the pretenders’”.

Asked about new competition in the fresh food battleground, a Woolworths spokesman said: “We are not recent converts to offering our customers great quality fresh food. Australian’s have known Woolworths as the fresh food people for more than 30 years.

“Our produce is 96 per cent Australian grown, fresh and fantastic quality. Just last year we relaunched the Fresh Food People jingle Australians know and love and gave it a contemporary feel.

“Woolworths will continue to call out to our customers in our marketing the things that have always been our strengths; fresh food, great service, a fantastic range all at a great price.”


In its recent market update the supermarket flagged it had been focussing on a three-year growth initiative and improved customer offering with a “focus on improving the supermarket customer experience through improved service, refurbishments and innovative offers”.

Wider issues

Aside from marketing, former executives believe in-store issues need addressing, such as improvements to Woolworths own-label packaging and an overhaul of the loyalty scheme, while the time and resource spent propping up its troubled Masters brand is thought to been a major distraction.

Masters Indeed, the Australian Financial Review reported earlier this month that analysts and investors believe Woolworths pushed up supermarket margins to record levels to fund its ill-fated home improvement strategy.

“Masters has actually done ok in some states but in New South Wales it has struggled and sucked money and attention at a board level,” one executive said.

Quite how Woolworths stems its sales decline is open to considerable debate, but Nelson stressed a more rounded approach to strategy was critical. And if that meant taking a hit to market share, so be it.

“I would build the case for a deeper understanding of the brand assets that reside at Woolworths, that being fresh food people, and I’d build a deeper understanding of our desired customers – and that isn’t ALDI or Costco customers,” he said.

“Yes, we may initially lose market share but I’d go in with a strategy to bring branded customers into the stores and have deep relationships with my suppliers while simultaneously building out my portfolio with private labels which are delivering deeper revenue.”

Stocks, meanwhile, said Woolworths should re-establish its emtional connection with customers by “going back to the beginning”.

“Look at why it all started. There will be some amazing nuggets about the how and why,” she said.

“If you go back to that heritage you can build on something that is authentic and that is what consumers believe.

“They don’t believe stuff that you just come up with. They believe brands that have authenticity and in Woolworths will have stories in their history that they can communicate and build a customer experience around.”

  • Steve Jones is chief reporter for Mumbrella

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