Tale of the Ticker Tape: How Woolworth’s Recent Performance Follows His Spinning Agency Problems

As Woolworths Betten in his third new creative agency in five years Simon Canning examines the correlation between the marketing flow and the underperformance of the supermarket chain.

Woolworths’ decision to lay off its third agency within five years signals a crisis point in the retailer’s future, which, while still dominant due to its size, is struggling to maintain brand equity and public support.

There’s an odd correlation between Woolworths ‘market performance and the agencies’ revolving door over the past five years.

Moving from Woolworths back to M&C Saatchi – five years after the retailer abandoned the agency in favor of what was then the hot shop Droga5 – will be like putting on a pair of comfortable and reliable old boots, according to one observer. It’s a brand M&C knows only too well.

ADVERTISING

M&C was the Woolworths agency of choice for a decade from 2001 when it first launched its new approach to the retail category under the tutelage of Luke Dunkerley, who was later poached by STW to lead marketing at Woolies packed up.

While there have been a number of other drags on Woolworths’ stock price, including the disastrous launch of Masters, advertising history has closely linked market performance.

Woolworths share price 2001-2016

Woolworths share price 2001-2016 (click to enlarge)

In the early years at M&C, the share price (ASX: WOW) rose steadily under the Fresh Food People banner. The price stood at $ 36 through mid-2007, then slipped back down to consistently trade in the low to mid-range of $ 20 when Coles began increasing his stake.

Woolworths made the call spooky and named the up-and-coming Droga5 as a company in early 2012. It should have been the beginning of a creative renaissance for the brand.

When the first Droga campaign went on the air, the share price rose and continued to grow steadily, reaching $ 37. But even as the agency tried to push a consistent approach, the retailer pushed their agency back and tried to counter Cole’s ‘down down’ strategy with its own pricing approach.

By almost the day Leo Burnett was announced as the deal’s surprise winner in April 2014, stocks began to slide again, trading at just $ 24, when news broke that Leo Burnett had been dumped after just two years tried a number of pricing and product strategies.

Despite the fluctuating share price, comparable sales results for the brand’s supermarket and spirits divisions have remained relatively stable over the past five fiscal years.

mc_coles_logo_800x246-234x72In fiscal 2011, the Australian food and spirits division’s earnings rose 4.3% from just 1.1% in 2012 as the brand split from M&C.

In his first year under Droga5, sales increased by 2.3% in 2013 and again by 3% in 2014, as Droga was dumped for Leo Burnett. And under Leos, sales still rose 2.3% in 2015.

The problem is that Coles saw sales growth of 4.7% in groceries and spirits in 2014 and up to 5.3% in 2015.

Former Coles marketer Tony Phillips left abruptly last year

Former Coles marketer Tony Phillips abruptly left Woolies last year

Internally, the marketing seat had more bums than a general seat at the cinema, with Andrew Hicks overseeing the marketing of the spirits brand Dan Murphy’s, who took over the tiller full time no later than after the sudden departure of former cole marketer Tony Phillips last year.

On so many levels, Woolworths is quickly becoming a marketing stereotype.

Marketing Focus retail analyst Barry Urquhart said the challenge for the new agency is simple. Take control of Woolworths’ arrogance as a brand that believes it knows the answers and refocus the brand to bring clarity to what it stands for in the minds of consumers.

“If you look at the 1988 brand, they were in trouble,” said Urquhart.

“They had a 17 percent market share when they brought in Fresh Food People. They wanted to own fresh and under that focus they had the territory to themselves and grew to 43%. “

While Coles’ foray into lower prices with Down, Down helped bolster that brand, the introduction of Cheap, Cheap only served to confuse consumers who had already been trained by the brand, “lower prices every day ” expected.

ALDIAt the same time, ironically, it served the purpose of Aldi, who managed to capture the concept of the cheapest offer on the market in the minds of buyers.

The broken relationship with consumers was further damaged when Woolworths ran a malicious Anzac Day campaign entitled “Fresh in Our Memories” and outraged loyalty card holders when Qantas frequent flyer points were removed from the program.

It then alienated fresh food fans with an ad starring Michelle Bridges calling people who grow their own vegetables “freaks”.

“People don’t know what Woolworths stands for anymore,” warned Urquhart. “The new agency needs to bring them back to a unique focus.”

From 2014 to 2015, Roy Morgan reported that Woolworths’ market share fell 2.3 percent to 37.6 percent, while Coles rose to 32.3 percent and Aldi rose to 11.8 percent.

How this came about is hard to fathom, but insiders who worked on the business highlight a reluctance to follow their agencies’ advice and an ingrained uncertainty about moving away from marketing on price rather than that To give consumers a purpose.

With a revolving door of marketers, dealing with Woolworths became a toxic endeavor for the agency’s staff. It’s a problem that the new marketing boss Hicks has to address as part of his assignment.

Regardless of the treatment of the previous two agencies, the move to M&C offers the option to hit the reset button for the brand.

For starters, it has the retail chops and will give some jobs to employees who otherwise might have left after the retail work on the Optus account was turned over to Big Red.

With the scale of the business, M&C is one of the boxes that has always been a question mark for some at Droga5 that needed to expand quickly to handle the marketing machine’s fast-selling retail work. The reality was, once the agency got into the business, scaling was no longer an issue.

Back on the Woolies account: Andy DiLallo

Back on the Woolies account: Andy DiLallo

What M&C also has to offer are people who worked on the account on the first trip through the agency, key people who help build a successful run at Droga5, including strategy director Justin Graham, and a creative director at Andy DiLallo, who learned the business at Leo Burnett before being lured to M&C.

It’s believed that DiLallo never got the margin he hoped to change the brand at Leo Burnett, and it will be interesting to see if he gets more opportunities at M&C.

Regardless of which direction M&C takes in terms of strategy, the retailer now has an agency that can require it to take its advice – something Woolworths did not do with either Leo Burnett or Droga5.

When put in control, M&C has a track record of building the consistency Woolworths so desperately needs. It took the broken brand that was The Commonwealth Bank and reunited it under the banner of “Can,” while Optus’ rock-solid positioning of “Yes” are just two examples

Urquhart has little doubt what the outcome will be if the agency can’t get clients back to basics and give consumers a message they can embrace.

“It reflects Myer,” he said of the brand, whose share price has steadily declined over the past few years as it wrestled with its model and image.

There is a lot that will affect Woolworths stock price in the future, just as it has in the past. However, the tracking of the retailer’s agency relationships over the past few years and various marketing strategies has been scary.

If M&C can do it, the ASX can be the measure of its success – if, of course, Woolworths can sit still long enough.

Simon Canning

Mumbrella’s Retail Marketing Summit will be held in Sydney on February 17th. To find out more and book tickets, click the banner below.

Retail Marketing Summit 2016

Comments are closed.