Woolworths to spend R10 billion to beat South Africa’s ‘unique obstacle course’

Woolworths plans to invest R10 billion over three years to accelerate growth initiatives to retain its position as South Africa’s premier high-end food retailer and grow its fashion business. 

Woolworths CEO Roy Bagattini explained the company’s plans to ensure its fashion business in South Africa is more resilient to logistical bottlenecks and reinvest cash in its “world-class” food business. 

This followed Woolworths’ revenue and profits for the 2023 financial year suffering as consumers continue to find themselves under pressure in South Africa and Australia. 

Group turnover for the period was down 16.7% to R37.5 billion. However, when looking at its continuing operations, the value was marginally higher at 5.1%.

Profit from continuing operations took a heavy hit, declining by 14.2% before tax, while headline earnings per share declined by 7.4%. Woolworths cut its interim dividend by 6.6% to 148 cents per share.

“It certainly has not been without its challenges, but we always try to find ways around it and mitigate the impacts on our business,” Bagattini told 702. 

“It is fair to say the South African obstacle course that we have to run every day is quite particular specific to us on top of global issues.”

“You sort of feel the pain once, and then you learn from that and come up with solutions,” he said. 

For example, the company has had to invest in making its clothing supply chains more resilient to Transnet’s struggles at local ports. 

It has had to put in more lead time with suppliers, make smaller orders, and sometimes turn to airfreight to get stock on shelves in South Africa. 

“Really, ramping up local production from South African manufacturers is a big risk mitigator for us,” Bagattini said. 

Woolworths has been investing and will continue to pump money into expanding its local manufacturing base to prevent the problems it experienced towards the end of last year. 

“The macros are the macros. There is not a lot you can do about that. What is critical for a business like ours is to really focus on things that you can impact and do have influence over,” Bagattini said. 

Woolworths also plans to expand its clothing chain through smaller stores in townships where the retailer has historically not had a presence.

The company plans to open 20 stores in the next financial year, adding to its 10 existing stores in areas such as Gugulethu, Thembisa, and Giyani. This should eventually increase to about 100 stores in the medium term. 

The stock range in smaller stores is limited, but “it’s got a unique proposition in terms of product offering”, Bagattini said.

Woolworths’ crown jewel, its food business, continues to go from strength to strength, with its sales growing by 8.4% compared to the prior period. 

Woolies Dash, the company’s food delivery service, continued to grow strongly, with its sales rising by 46.6%. However, it still only contributed 5.1% of total food sales. 

However, the company is not resting on its laurels and will pump money into this part of its business to retain its world-class status. 

“I think our food business is world-class. Its customer offering is very special, and it does offer the best proposition in the market,” Bagattini said. 

Bagatinni explained that a large part of the investment in the food business is set to enhance this offering through limiting price increases and increasing the range of products available. 

Investment in increasing the product range, in particular, has proven to bring more customers into Woolworths’ stores and increase the basket size of its shoppers. 

The company is also looking to add more cafés, coffee carts, liquor and pet-care products to boost growth at its South African food unit. 

Part of this growth will be driven by its acquisition of Absolute Pets, which was announced late last year.