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.
