Shares in supermarket giant Woolworths Limited (ASX: WOW) have been on the nose with many investors since late 2014 as its failed Masters foray and loss of market share to Wesfarmers Limited (ASX: WES) owned Coles wreaks havoc on profits and margins.
Despite its share price falling over 30% since October 2014, my recent shopping experience with Woolworths shows its turnaround strategy under new CEO Brad Banducci may resurrect life into the consumer staple just yet. Here's what happened.
Back to basics
Following the divestment of its Home Timber and Hardware Group to Metcash Limited (ASX: MTS) and exit of Masters, Woolworths is now back to focusing on what it does best – supermarket retailing.
My weekly shop over the weekend can attest to this fact with Australia's leading supermarket pulling out all stops to make everyday shopping cheaper. In every aisle I entered, the shelves were littered with yellow and green stickers indicating items were half price or less.
Although the deeper discounting means margin attrition will feature in its 2017 results, Woolworths appears to be taking a page out of Amazon.com, Inc.'s book by choosing long-term sustainable growth over short-term profitability. This, in my view, lays solid foundations for the years ahead.
Online expansion
Woolworths is also ramping up efforts to pursue a legitimate omni-channel marketing strategy through expansion in its online business, Woolworths Online. Although competitor Coles is offering a similar service, having used Woolworths Online in recent weeks myself, Woolworths appears to offer a better online experience through affiliate partnerships (and the ability to track your delivery truck in real time).
For example, Woolworths has partnered with American credit card giant American Express to offer customers credits (in the form of a cash credit to your bill) when certain spend thresholds are met on AMEX cards on Woolworths Online.
It has also embraced the internet by signing up to fast-growing referral website Cashrewards.com.au, which provides users with cashback on online purchases or a discount on Woolworths' gift cards (which can be used online or in-store) in order to generate leads.
These additional rewards/discounts not only make shopping cheaper for ordinary customers, but increase Woolworths' customer value proposition for online shopping – a channel with traditionally higher total transaction values.
Customer loyalty
Finally, Woolworths is ramping up its customer loyalty strategy by gamifying the shopping experience and offering loyalty cardholders (and shareholders) bonus points or extra discounts on grocery items, from time-to-time.
In return, it offers customers choice on how to use these rewards through its partnership with Qantas Airways Limited (ASX: QAN). This provides more flexibility compared to other loyalty programs and is legitimately able to make a difference to a shopper's back pocket.
Foolish takeaway
It's no secret that Woolworths has a special place in my heart, as it was the first stock I ever purchased on-market (after buying Telstra Corporation Ltd (ASX: TLS) in its T3 offer).
Even though I've been one of those long-term shareholders suffering at the value destruction that occurred over the last 24 months, I have never been a loyal shopper to Australia's largest retailer. However, if my weekend shop is anything to go by, that may change shortly.
Whilst I'm aware that one additional shopper is unlikely to change the fortunes of the $31 billion behemoth, if enough people begin to see value in shopping at Woolworths, you might soon find that Woolworths sales (and share price) will be a lot higher.
