One thing I've always liked about Woolworths Limited (ASX: WOW) is that management talks about product offerings a lot.
Rather than margins or scalability, Woolworths' executives spend most of their time talking about just three things; lower prices, better product offerings, and excellence.
This is important because it shows management is committed to delivering the things that are most important to the development of its businesses and pleasing customers, who ultimately drive profits.
This trend continued at yesterday's AGM, and management also did a fair job of answering investors' concerns even though I thought the most critical issue was glossed over.
Based on media reporting around the web, it seems fair to say investors had four major questions:
- Why is Woolworths continually growing sales slower than competitor Wesfarmers Ltd's (ASX: WES) Coles stores?
Management dodged this one by stating that 'we are extending our leadership in Food and Liquor' and 'we also grew our market share and customer numbers in the year'.
To my mind this statement doesn't adequately address concern about underperformance compared to Coles or new market entrants like Costco and Aldi.
However CEO Grant O'Brien did say later in his speech that the entry of new players into the market would only intensify competition and would lead to greater innovation, lower prices and better access for consumers.
While this is true and good for consumers, shareholders really want to know if Woolworths is capable of holding its ground against dynamic and disruptive market entrants.
- Why hasn't Masters Hardware broken even yet?
While Home Improvement will not break even during 2016 (no surprises there), management remains optimistic and reiterated that sales increased by 45% to $752 million during the past twelve months.
Combined with a low price offering and the transition from market entrant to participant, Masters is still expected to become a material contributor to profit in future years although no indication was given of when that might happen.
Chairman Mr Ralph Waters asked for a little faith, reminding shareholders of Woolworths' track record of building successful businesses, of which the liquor division was a 'standout example'.
- Why were executive long-term incentives changed from a five to a three-year timeframe?
Mr Waters replied that the changes 'are intended to create incentives for management to deliver in timeframes long enough to align with shareholders' interests, but short enough to act as a sensible driver for management behaviours'.
I really don't like anything shorter than a five-year incentive in companies I own, however if taken from a slightly different perspective this could prove to be an excellent decision since the next three years are really going to determine if Woolworths thrives or sees its market share eaten away by Coles, Costco and Aldi.
A three-year time frame really allows management to focus on the problems at hand, rather than more distant ones; although there are obvious perks and penalties with this approach.
It's also worth noting that new changes introduced on 1 July 2014 require the CEO to build a shareholding equal to 100% of base pay over a five-year period, while all other Management Board members must build a 50% base salary shareholding over the same period.
- Why is the share price falling?
In what was perhaps my highlight from the online announcements of the meeting, management pointed out that while they felt the market had the price wrong, the price was not really relevant to a decision to invest in Woolworths, which is a company to own for the long term.
It's advice Warren Buffett would be proud of, and indeed Woolworths could well be the kind of company he might like to own. Discover two more ASX shares Mr Buffett could love by checking out The Motley Fool's FREE report below!
