Roger Corbett stands down as chief executive of Australian retailer Woolworths in just over a month. As the company reports yet another highly impressive set of results, David Robertson looks at Corbett’s extraordinarily successful period in office and assesses how the retailer will cope after his departure.
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Roger Corbett announced his final set of financial results last week before he retires as CEO of Australian retail group Woolworths, bringing to a close a seven-year tenure which has seen unprecedented growth and success for the company. Corbett’s hands-on approach and dedication to cost-cutting has made Woolworths a regional powerhouse and the envy of many supermarket chains around the world, and his period in office arguably represents one of the most impressive eras in modern supermarket retailing
Since 1999, when Corbett officially took over as chief executive, Woolworths has grown net profits from A$257m to A$1bn. Sales growth has also been strong, up from A$18.5bn in 1999 to A$37bn in 2006. True to form, Corbett’s last set of financial results also beat expectations. Net profit after tax for 2006 was up 24.3% to A$1014m, beating analysts’ forecasts of 15% to 23%.
It is a measure of Corbett’s success that nobody was particularly surprised or even that excited by this performance.
But that has not always been the case. When Corbett took over, many institutional shareholders were unhappy with the appointment, despite his long career in retailing – he began his working life as a 17-year old in the loading-docks of his local supermarket.
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By GlobalDataThe Woolies share price dipped from A$5 to A$4.20 in the year after he took over, and had barely recovered to its pre-Corbett value by 2001. But then Corbett rolled out Project Refresh and Woolworths started its dramatic climb. Project Refresh was typical Corbett: its aim was to cut supply and distribution costs by developing cutting-edge information technology and logistics.
Project Refresh has so far saved about A$3.8bn and is forecast to save another A$4bn in the next three years. Half of these savings have been returned to shareholders and half to consumers in the form of lower prices. Corbett appears to have wholeheartedly adopted the Wal-Mart “everyday low prices” principle following a period being mentored by former Wal-Mart boss Jack Shewmaker in the early 1990s.
Even the suppliers, many of whom have been squeezed by Woolworths’ cost-cutting, admire Corbett, saying that his willingness to explain what he wants and where the supermarket is going has actually led to an improvement in their own businesses.
The savings Woolworths has wrung from its supply chain have given Corbett cash to make acquisitions. His first major deal was the A$1.3bn purchase of Australian Leisure & Hospitality (ALH) in 2004. This acquisition successfully boosted Woolworths’ share of the off-licence market and gave it a useful new stream of revenue courtesy of ALH’s gaming and gambling machines.
Corbett’s biggest deal to date was the A$2.4bn takeover of Foodland’s New Zealand business last year. This gave Woolworths a 45% share of the New Zealand market and as the company goes about imposing its superior operations, the profits are already beginning to rise.
JP Morgan analyst Shaun Cousins said last week: “Despite tough competition, management believes sustained growth can be achieved in New Zealand… With the bulk of the expected synergies yet to flow through, this business is expected to be a material driver of earnings growth over the next five years.”
These tactics have enabled Woolworths to trounce its rival Coles Myer in recent years. Coles was once the largest retailer in Australia but has lost its crown to Corbett’s Woolworths.
The comparison between the two companies is not flattering for Coles. Since 1999, Woolworths’ shareholders have seen a total return on capital of 335% compared with an average 88% return from Australia’s top 200 stocks, and a 71.5% return at Coles.
Woolworth’s share price is now over A$19 and its market capitalisation has risen from A$6bn to A$23bn in just seven years. Corbett may have picked up a healthy A$50m in remuneration during his tenure but very few investors will quibble over whether they have received value for money.
Corbett retires on 1 October and his replacement Michael Luscombe, currently chief operating officer, has big shoes to fill.
However, analysts are showing little concern about Luscombe’s ability to do just that, as he has been thoroughly immersed in the Corbett doctrine for several years. Also, Corbett’s style of management is now so ingrained at Woolworths that it will remain long after his departure – not unlike Sam Walton’s influence on Wal-Mart.
Of course there are issues that Luscombe will have to address, such as what to do once Project Refresh has run its course. Where will costs be cut then?
Also, Woolworths still needs to spend more on its stores to raise them to a level that matches the best of Europe and North America, and this heavy capital investment will inevitably drain money that might otherwise go to shareholders.
Then there is the spectre of Coles, which looks set to be acquired by private equity. Focused management at Coles could see it become a serious challenger again, eating into Woolworths’ dominance.
But these issues are a couple of years away. Luscombe should have a pleasant honeymoon, and when trouble does surface he will still be able to turn to Corbett for advice. Corbett is sticking around as a consultant for another five years, which will be reassuring to the investors who already owe him so much.
Perhaps all that needs to be said about Roger Corbett’s management style is the story he himself tells about finding a Woolworths shopping cart in Sydney’s Circular Quay, near the Opera House. He pushed it all the way up George Street to return it to a store by the Town Hall. Under Corbett’s leadership, no detail was too small for attention.
By comparison, Coles Myer chief executive John Fletcher admitted wryly when he took office that he had not been in a supermarket in 25 years. Enough said. Australia’s food industry will miss Roger Corbett.
