Wednesday's sales figures for the December quarter showed Woolies' first half sales were up very nearly 16 per cent to $22.1 billion. To improve your sales by 16 per cent when you're a small company on the way up is good work, but to continue to grow sales by 16 per cent when you're the country's biggest retailer is quite astounding.
It is a testimony to Woolworths management since it was rescued and re-floated by Paul Simons that it has been able to grow so consistently and strongly. It has also been a very nice ride for shareholders in that float and anyone else who jumped aboard just about anywhere along the way.
But there are nonetheless reservations about the culture of Woolworths that are a little harder to measure. These can be broken down into four broad areas:
1. The buying power that comes with being a giant enables Woolworths to really throw its weight around with suppliers. The end result is lower prices for consumers and higher dividends for investors, but in the process it has on occasion been absolutely ruthless and quite anti-competitive. Woolworths and Coles together represent a near duopoly in Australian groceries. They have a tendency to insist no other retailer is supplied at as good a price as they receive.
2. Woolworths has displayed plenty of arrogance when it comes to the Australian Competition and Consumer Commission and the Trade Practices Act. Twice it has been caught out in blatantly anti-competitive activities and both times it has fought the charges to the limit of the law and, even then, effectively claimed the law was wrong. Not nice. The most recent case was a particularly egregious imposition on small would-be liquor retailers - Woolworths was lucky to get off with a fine of only $7 million. The inability to concede wrong-doing could mean there's a tendency to do it again.
3. The gambling addiction is something that many Australians, including State Governments, suffer from. Woolworths has gone from being a retailer to being a retailer that is also Australia's biggest poker machine operator through its expansion into pubs. That poses a problem for some ethical investors.
4. It's unlimited growth ambitions are nice for investors, but you might wonder about how healthy it is for our society overall to suffer a loss of diversity in retailers across just about every facet of retailing. The expansion in selling petrol is a foretaste of what Woolworths would like to do in pharmacies and most other fields where dollars are exchanged for goods at the retail level.
Under James Strong's chairmanship, Woolworths has softened its image. It does make more of an effort now to give something back to the communities from which it makes so much money, but those four general areas remain.
For investors unconcerned about such things, Woolworths is indeed one of Australia's best companies and it shows no signs of slowing down. For those who want their company to be successful but also a corporate citizen they can be proud of, they should make that feeling known to the board.
- Michael Pascoe