Woolworths is comprehensively smashing Coles on every metric from customer service to branding to quality of produce, and it’s largely down to Coles’ misguided obsession with low prices.
That is the damning assessment of a new report by investment bank UBS, which finds the Wesfarmers-owned supermarket chain “has lost its way”.
The nub of the problem is that Australians are shopping more in Woolworths and less in Coles – and according to UBS, they are doing so because Woolworths is giving them what they want, and Coles isn’t.
But the report insists this tilt towards Woolworths has nothing to do with price. In fact it found prices at the two major supermarket chains were “broadly on par”.
Rather, the areas in which Coles stood out as being particularly poor were quality of produce, shopping experience, staff quality, customer service, and branding – ie just about everything else.
UBS asked 45 of Woolworths’ and Coles’ suppliers to rate the two supermarkets on a number of metrics. As the table below shows, they rated Woolworths above Coles on every single one.
While Coles was very close to Woolworths on price and value for money, on other metrics it was way behind.
It scored particularly poorly for areas like in-store presentation, quality of fresh food, effectiveness of advertising, ‘in-store theatre’, and the ‘calibre of category buyers’.
It scored closest to Woolworths on the ‘private label driving growth’ metric.
Coles’ relatively better performance in this area again illustrates the focus on price above all else that UBS was so critical of.
Aldi or Whole Foods?
A recent report by IBISWorld showed that the rise of low-cost private label products has been one of the most tangible effects of Aldi’s arrival in the Aussie market. Aldi is a pioneer of the private label model – that’s one reason why it can charge so little.
In response, Coles and Woolworths have put a lot more effort into expanding their private label ranges, with some success.
But the UBS report argued Coles should not be modelling itself too closely on Aldi.
“Suppliers have commented to us that Coles’ focus on cutting range and price and growing private label is seeing the model shift away from [Woolworths] and towards discounters [Aldi].
“The discounter model is not one Coles and Woolworths can compete head to head on (per UK experience) given the higher cost-structure.”
They pointed out that Coles and Woolworths stocked 10 times as many products as Aldi and offered higher levels of service and more brands.
So what should they be doing?
“We believe that Coles [and Woolworths] need to continue to focus on differentiation through evolving ranges (organics, ready-made, health food), differentiated offers and clearer messages that are resonating with shoppers,” UBS stated.
A shop that has implemented this sort of model with great success is US upmarket grocery chain Whole Foods – the Amazon-owned anti-Aldi.
And according to Dr Louise Grimmer, a retail expert from the University of Tasmania, Woolworths is consciously imitating Whole Foods.
This week, to much media fanfare, Woolworths opened a new-look store in Marrickville, in Sydney’s hipster-heavy inner west. The resemblance to Whole Foods was clear.
Bedecked with wooden panelling and boasting a cheese cave, in-store bakery and – the pièce de résistance – a living lettuce display, Woolworths described the new store as “rustic yet future-proof”.
Dr Grimmer said Woolworths was “addressing the fact that people want to shop in places that feel more like a local grocers”.
“The new Woolworths [in Marrickville] looks so attractive. It has softer lighting, everything looks like it’s a local market, there’s none of those neon lights. They’re trying to tap into the appeal of a farmers’ market.”
She said Coles’ obsession with being low cost had not worked, and that the ‘down down’ TV campaign in particular, that emphasised cheap prices, had just annoyed people.