It’s time to put the bid for ALH in a draw and talk about current retailing trends for the
Woolworths’ chief.
Next Tuesday looms as a “back to reality day” for
Woolworths boss Roger Corbett. And not for his plunge deeper into the ‘sinful’
world of grog and gaming.

Tuesday is when his
company’s fourth quarter and full year sales will be released, an event eagerly
awaited by analysts, fund managers and investors. They’ll all be watching to see if Roger has managed
to arrest the slide in topline sales growth, and in same store sales that,
if it continues for too much longer, threatens to trim profits. But attention will be on Roger’s venture
into show business via the announced takeover bid for Australian Leisure
and Hospitality with Melbourne hotelier,
Bruce Mathieson.

Woolies will be financing the offer and taking a
75% stake in the group which is expected to include the pubs and outlets in
Queensland owned off balance sheet by Woolies (50%),
Mathieson and his partner Andrew
Griffiths.

The ALH deal has already seen Woolies placed
on ‘credit watch negative’ for possible downgrade by Standard &
Poors, and next week’s numbers and their composition will go some way to
helping S&P in their deliberations.

They, like all other investors in Woolies will be
looking for evidence that the sales growth machine that Roger has helped drive
these past five years, has been re-ignited after running out of steam late last
year.

The slowdown in sales growth that has hit the
company since late 2003 is something Roger, his managers and the Woolies board
haven’t had to deal with in the past and it has coincided with the launch by
rival Coles Myer of its petrol offer for supermarket and some liquor
shoppers. That’s helped push Coles’ supermarket sales higher at a
rate double the growth at Woolies stores.

This has hurt Woolies, with its fuel offer
deal with Caltex slow to get going, and now subject to further delays as Caltex
and its franchisees remain in dispute.

Some older investors wonder if Roger and the
Woolies board have, like so many other boards and managers have in the past,
discovered the delights of doing a ‘deal’ to the drudgery of everyday management
and running a business like supermarkets, especially when the going gets
tough.

Roger Corbett and everyone else at Woolies will
deny it, but there’s just a whiff of a nice adventure in the ALH offer with
Mathieson. Easy headlines, a strong balance sheet make for a touch of ‘romance’,
the image of a business buccaneer.

Talking tough about terms and tactics, pushing for
that quick thrusting move makes becomes preferable to the ordinary business ‘stuff’. And that’s a big help when the
message is mixed, or a bit tough, as it has been in Woolies for most of this
year.

Its been a series of setbacks or minor hiccups that
have knocked some of the shine off the Woolies growth story.

And with the NAB’s shock second earnings downgrade,
the more hard-headed investors will want evidence that Roger is not being
distracted to the point where he takes his eye off the ball when getting
the supermarkets business back on track is the main game.

And if Roger needs to discuss this ‘temptation’ to
look to a bit of corporate vaudeville in tough times, he only has to
ask partner Bruce Mathieson about his
experiences as a partner with perhaps one of Australia’s best exponents of
the diversionary takeover, Alan Bond.

Those tales could be a salutary lesson to Roger and
enable him to avoid being further ‘seduced’ by the joys of talking about ‘a
billion dollar takeover’. And we also have to mention that Roger, if he needs
any further convincing about the dangers of being distracted by deals, that the
other great illusionist of corporate Australia, John Spalvins and his ill-fated
Adelaide Steamship are no longer, after at one stage controlling
Woolworths.

So just what have been the problems in Woolies’
supermarkets businesses?

Here’s how Crikey reported them in April: “In
the third quarter to March, reported yesterday, Woolies supermarkets grew sales
3.7% but on a comparable like for like basis, which excludes petrol, the growth
was only 2.3%. For the year to date Woolies sales grew (on a like for like
basis) only 3%.

“For the same quarter of last year the supermarkets
division lifted sales by a gross 8.3%, with like for like sales for the quarter
up 6.0%. The company said a year ago that ‘sales accelerated’ during the
quarter, now they are decelerating when you compare the third quarter this year
to the preceding two quarters.

“Food and liquor sales grew by 5.7% gross
in both the second quarter and the first half. On a like for like basis the
increase was 3.8% in the second quarter and 3.3% for the half year.”

The full story is here https://uat.crikey.com.au/business/2004/04/21-0001.html

That’s the problem in a nutshell. So far profits
haven’t been hurt. But with the much vaunted logistics revamp, Project Refresh,
going off the boil, and sales growth slowing itself, there’s every
possibility earnings could be hurt in the new financial year, if Roger and the
board are distracted.

And Roger and the board can talk as much as they
want about not taking their eyes off the main game, but a billion dollar
takeover offer like ALH, is a billion dollars being spent with all the attendant
execution and financial risk.

So next week, expect Roger and his team to be
especially vigilant in meeting investor concerns and
answering questions. But one question Roger will be mute on is the
increasingly touchy one of his successor at the helm of Woolies. That will be a
measure of how far Roger is prepared to go to meet investor
concerns.