Woolworths Limited (ASX: WOW) CEO Brad Banducci has announced that the supermarket retailer will can its 'Select' upmarket private label brand in an attempt to restore sales growth to 4%.
It's a major shakeup of its private label strategy and follows similar moves by Coles – owned by Wesfarmers Ltd (ASX: WES). Woolworths had already announced that it was phasing out its Homebrand label and replacing it with the 'Essentials' brand.
The end of the Select range was announced recently in a series of meetings by Mr Banducci with investment banking analysts last Friday. Select will be phased out over the next few months, with the simple 'Woolworths' brand replacing it.
Woolworths' CEO also announced that his long term goal was to grow food and liquor sales by 4% and volumes by 2% over the long term.
According to media reports, Woolworths conducted a review of its private label strategy last year after conceding that shoppers perceive the quality of Aldi's private label brands to be on par or better than Select and much better than the Homebrand range. Select was around 27% more expensive than similar Aldi brands and Homebrand was 21% cheaper than Aldi's equivalent brands. The Woolworths private label brand will be pitched at a much lower price than Select – most likely on par with Aldi's private label products.
One reason customers think Aldi's private label brands are better quality is the imaging and look of their products which mimic leading Australian branded products. Compare that to Coles and Woolies strategy for their cheap private label products – which is essentially just a no-nonsense label without any images.
Woolworths' new Woolworths label would only be a food-focused brand covering several thousand products, whereas Select covered a multitude of both food and non-food products.
Foolish takeaway
It's yet another baby step forward for the struggling supermarket retailer as it tries to hold onto its leading market share and start reposting positive same store sales growth.
As Mr Banducci says, the Woolworths turnaround is like that of turning around a supertanker and will take time.
