Tough negotiating with its staff and suppliers has allowed Woolworths in New Zealand to cut prices to boost market share, although not yet its profit, the giant Australian retailer said in reporting its first half sales today.
The company's New Zealand supermarkets business grew 155.3 per cent to $A1.99 billion ($NZ2.25 billion) although that figure was distorted by the timing of its purchase of Progressive Enterprises in November 2005.
It bought Progressive – owner of Countdown, Woolworths NZ and Foodtown chains – for $2.6 billion.
Comparable NZ sales for the first quarter were up 1.9 per cent and for the second quarter were up 3.8 per cent but these were hit by an industrial dispute in the first quarter that affected the second quarter.
It lost market share to rival Foodstuffs during the lockout but chief executive Michael Luscombe said by December that had been recovered in volume terms if not in value.
He said Woolworths' renegotiation of prices with suppliers to the New Zealand stores had allowed it to improve margins which the company had "reinvested" by cutting prices.
Mr Luscombe said when Woolworths bought Progressive there had been a "very large gap" between its prices and Foodstuffs', which runs the New World, Pak n' Save and the Four Square chains.
The Woolworths stores had had to cut prices significantly just to get near Foodstuffs' prices.
Overall inflation in Woolworths NZ stores had been just 1 per cent compared with generalised food price inflation of 2 to 3 per cent.
Mr Luscombe said Foodstuffs had responded quickly "like a good competitor" but because of its price advantage it did not have to cut so aggressively. Woolworths was not seeking further changes in price relativities.
"We are not looking for a price war."
He said the initiative in December to give Woolworths' customers a petrol discount at Shell and Gull stations had had generally positive results even though Foodstuffs had quickly matched its move in a deal with BP.
"Everything we see says it was a good thing to do."
The price battle has spilled over into a fight for control of New Zealand's largest general merchandiser, The Warehouse. Both Woolworths and Foodstuffs have purchased a 10 per cent stake and applied to the Commerce Commission for full control.
The winner is seen gaining a crucial advantage in spreading their influence into general merchandise sales.
Woolworths reported group sales rose 11.5 per cent rise in the six months to December 31.
Shares in Woolworths added 0.7 per cent to $A23.81, having climbed 2.5 per cent yesterday on hopes of strong sales.
Mr Luscombe said the group outlook was positive for the second half.
"Provided current retail trading pattern and the present business, competitive and economic climate continue, we except sales from the continuing operations for the full year to grow in the region of 8 per cent to 12 per cent," he said.
The guidance is a restatement of the sales outlook the company gave last year.
The company's supermarket division, its largest, posted sales growth of 16.7 per cent to $A18.84 billion in the half year.