Here’s how Woolworths Limited is dealing with its ‘perception problem’

Credit: Scott Lewis

The embattled Woolworths Limited (ASX: WOW) is set to ramp up its efforts to win back customers in its struggling supermarkets division by dealing with a “perception problem” with its Homebrand label.

Woolworths has spent decades building the private label brand, with The Australian Financial Review reporting total annual sales of roughly $1.4 billion spread over more than 950 product lines. Generic brands are an important element to any supermarket chain as their cheaper prices can give consumers an impression of the group’s overall pricing levels.

However, the problem with Homebrand products doesn’t appear to be with their pricing levels, especially after the group’s recent investment in pricing improvements in order to become more competitive with its rivals.

Instead, it seems the problem lies with the ­level of expected quality amongst those products. That is, many consumers believe they can get better private label products by shopping with rivals such as Aldi or Coles, which is owned by Wesfarmers Ltd (ASX: WES).

As part of its efforts to address this problem, Woolworths will combine its current value ranges, Homebrand and Essentials. It will name the combined brand after the latter (Essentials). As quoted by The AFR, a spokesman for Woolworths said:

When customers see each product move to the new Essentials packaging, they can be assured the product will offer market-leading value for money for our customers.”

Indeed, this is part of a much larger strategy to improve Woolworths’ competitive position in the supermarket space after losing ground to Coles and Aldi. The company is by no means out of the deep end yet, however, and investors might be wise to let this story play out for a while longer to ensure Woolworths is on the right track for the long-run – particularly given the recent change in management.

Woolworths’ share price has fallen 1.3% today and is now trading at $22.15.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.