The report describes an investigation into the performance of Woolworths Holdings Limited in relation to the South African economy. It considers how changes in the economy of South Africa with regards to GDP, CPIX, Interest rates and employment figures, have an impact on Woolworths.
Background to investigation
As business students it is vital for us to be able to analyse a company's performance in relation to changes in the rest of the economy. This is a vital skill since companies do not exist in isolation and factors in the economy have an impact on the operations of a company. It is important to know what these impacts could be since we may soon find ourselves in positions where we are required to make decisions for companies in relation to economic factors in the country.
Objectives
The objectives of the report are to:
Investigate the changes in the South African economy with a focus of GDP; CPIX; Interest rates and employment figures over the last five years.
Analyse Woolworths with regards to its history and current operations further to present and explain the vision; mission and goals of the company.
Investigate and describe the financial and general performance of the company by defining; displaying and interpreting the trends of: profit; profit margin; market share and public relations over the last five years.
Draw conclusions of the performance of Woolworths in the context of the company's mission statement, vision and company goals and the South African economy.
Procedure used to gather information
The information used to compile this report was gathered through:
Website usage of Business Day and other online sources
Textbooks for definitions
Journals
Analysis of annual reports of Woolworths Holdings Limited from 2007 to 2011
Scope and Limitations
The investigation we made was limited to information we had available online, in the TSiBA library, in textbooks and published figures in Woolworths' company reports.
There were a number of figures that could not be obtained.
Time limitations were also faced since we have a number of other deadlines to meet and exams begin on the 28th of May 2012.
Plan of development
The report begins by stating the results of our investigation and describing the South African economy. This will be by considering for key economic variables GDP; CPIX; Interest rates and employment figures over the last five years.
Then Woolworths Holdings Limited's history and present operations will be mentioned followed by displaying and describing their vision, mission statement and company goals.
The performance of Woolworths will then be considered by analysing their profits, profit margins, market share and public relations over the last five years.
Lastly conclusions will be drawn on the performance of Woolworths Holdings limited in the context of their mission statement, vision and company goals and the South African economy.
TRENDS OF THE SOUTH AFRICAN ECONOMY OVER THE LAST FIVE YEARS
GDP
Definition of GDP
According to Frank and Bernanke (2001) GDP - Gross Domestic Product - is the most commonly used measurement of economic activity. Its intent is to measure the total production of an economy in a given period. A more precise definition of GDP is "the market value of final goods and services produced in a country in a given period" (Frank & Bernanke, 2001).
Importance of GDP
It gives a clear measure of how the country is performing economically. It is important for the government to know these figures and changes so that they can apply policies where necessary to sustain economic growth. Maintaining positive economic growth is one of the major objectives of macroeconomic policies in many developing countries (Mostert, et al., 2008).
Trends 2007 - 2011 of GDP In South Africa
The following graph indicates the trends in the GDP annual growth rate over the last five years in South Africa.
Graph 2 GDP Annual growth rate (www.tradingeconomics.com)
There has been a decrease on the GDP in 2007 to 2010 of 7.3%. From 2010 to 2011 the GDP growth rate increased by 3.6%.
Interest Rates
2.2.1 Definition of Interest Rates
An interest rate is charged or paid for the use of money. The interest rate is often expressed as an annual percentage of the principal amount. It is calculated by dividing the amount of interest by the amount of the principal. This index often changes as a result of inflation and South African reserve bank policies (Mohr & Fourie, 2004).
Importance of Interest Rates
The interest rate is one of the most important variables of the economy, the South African reserve bank and the government (National Treasury) keep close look at this variable and make many decisions based on it. The two authority bodies adjust the interest rate for policy devising. These policies are often called monetary policies (Mohr & Fourie, 2004).
Trends 2007 - 2011 of Interest Rates in South Africa
The graph below indicates the changes in the interest rate over the last five years in South Africa.
Graph 3 Interest Rates in South Africa 2007 - 2011 (www.tradingeconomics.com)
The interest rate displayed is the repo rate - the rate at which banks lend money from the South African Reserve Bank. There was an increase in 2007 to 2008 of 3.3% where it reached its peak for the period. In 2009 interest rates decreased by 4.8%. In the 2009 to 2011 period there was a decline in interest rates of 7%.
CPIX
2.3.1 Definition of CPIX
CPIX [consumer price index] is an index of the prices representative; it measures a basket of consumer goods and services. The CPIX thus represents the cost of the "Shopping basket" of goods and services of a typical average South African household except for Mortgage and interest rate (Mohr & Fourie, 2004).
Importance of CPIX
The CPIX is a very important tool to the South African economy as the government uses it to calculate the inflation rate. Keeping inflation low is one of the major macroeconomic objectives of the country. So it is vital to keep it under control, and this cannot be achieved without the CPIX. The other most important thing about the CPIX is to measure the cost of living amongst the households in the country to see if it's declining or inclining, this helps the authorities and policy makers to make decisions (Mohr & Fourie, 2004).
Trends 2007 - 2011 of CPIX in South Arica
The graph below illustrates the changes in CPIX for 2007 to 2011 in South Africa.
Graph 4 CPIX in South Africa 2007 - 2011 (www.answers.com, 2012)
The graph above shows the CPIX drifts over the last five years. In 2007 it was sitting at 6.5% and increased to 11.3% in 2008. For 2008 to 2010 it dropped to -4.3% and it was stable till 2011. Since 2011 to date there has been an increase to 5.7%.
Employment Figures
Definition of Employment Figures
Employment i.e. labour force [people who are able and willing to work] is derived as portion of the population of a country that supplies labour for goods and services. This is the measure of people who are employed at the specific period i.e. a year, week, month etc. (Mohr & Fourie, 2004).
Importance of Employment Figures
It is firstly important since "full employment" is a major objective of macroeconomics of country. It is also important for the growth of the economy and income to the National government. It's important for policy makers and in decision making in the economy (Mohr & Fourie, 2004).
Trends 2007 - 2011 of Employment Figures in South Africa
Graph 5 Employment Figures in South Africa 2007 - 2011
(www.tradingeconomics.com, 2012)The following graph illustrates the trends in employment for the 2007 to 2011 period.
The graph above is the expressions of the trend of Employment figures [employed labour force] in South Africa for the last five years. For the 2007-2008 periods there was a diminution in employment of 1.95%. The numbers started growing in 2009 to 75.8%. In the last two years it was 74.7 and 74.37 for 2010 and 2011 respectively.
3. WOOLWORTHS HOLDINGS LIMITED
3.1 History of Woolworths holdings limited
The retail store Woolworths was originally found by Max Sonnenberg in the year 1931. The first Woolworths chain store opened its doors in Cape Town 31st October. According to Woolworths, they have built on a great reputation to supply their customers with great quality in clothes and excellent value. Over the past 80 years, their focus on quality has resulted in WHL to open more stores in South Africa (www.fastmoving.co.za, 2012).
To convenience all their customers, Woolworths were the first South African retailer to introduce "sell by" dates. Max Sonnenberg has believed that in order for their company to become successful they would have to supply their customers with superior quality and reasonable prices on all their products (www.fastmoving.co.za, 2012).
3.2 Present Operations of Woolworths holdings limited
Today Woolworths is classified as a retail store and has extended through franchise partnerships throughout Africa, the Middle East and Australia. They now trade in over 400 different stores (www.woolworthsholdings.co.za, 2012).
The company is now known as Woolworths Holdings Limited (WHL) and is an investment company. It is listed as one of the top 100 companies on the Johannesburg Security Exchange (JSE). Woolworth's main focus is to provide financial and retail services to all its customers around the world (www.woolworths.co.za, 2012).
Woolworths Holdings Limited trades under two main names Woolworths (Pty) Ltd and Country Road Ltd. "It offers a range of quality clothes, food, home ware, cookware, beauty products and they also offer financial services" (www.woolworthsholdings.co.za, 2012).
"Country Road Limited is an Australian based firm that offers home ware in the retail stores, it is also listed on the Australian stock exchange" (www.woolworthsholdings.co.za, 2012).
3.3 Description of Woolworths holdings limited
3.3.1 Mission Statement of Woolworths holdings limited
This is Woolworths Holdings Limited's mission statement as found on the company website: "We, as passionate committed retailers, understand and lead our customers through excellence and a deep knowledge of our products and services and the world we live in" (www.woolworthsholdings.co.za, 2012).
As a retail store it is their desire as a company to provide its customers with excellence. They also stress the importance of have a deep knowledge of the products.
3.3.2 Vision of Woolworths holdings limited
Woolworths Holdings Limited has a three year vision that is divided into five categories of focus their customers, operations, employees, good business journey and their shareholders. This report will mention a section from each.
Their customer vision: "We will be the retailer of choice amongst the aspirational customers in the South African LSM [Living Standards Measure] 8 - 10 market."
Woolworths operational vision: "We will be a simpler, better, faster business that is more entrepreneurial, disciplined and principle driven, with simple structures and processes."
Employee vision: "We will have created an aspiring workplace for our employees."
Good business journey: "We will be recognised as leaders in the retail industry for our continuing sustainability."
Their shareholders vision: "We will have achieved profitable market share growth and have delivered consistent upper quartile returns to our shareholders."
(Woolworths Holdings Limited, 2011)
3.3.3 Goals of Woolworths holdings limited
Woolworths has divided their company strategic objectives into four focus areas their customers; operations; employees and "Good Business Journey." We will consider their customer driven section of their objectives.
The following are their customer objectives:
"To be a customer-centric business"
Woolworths claims to have gone through great lengths to understand who their customers are so that they are able to provide products and services for them.
"To be a brand value-driven business"
As a company they strive to ensure that their brand incorporates its values and that those values are visible in the brand.
"To build string profitable customer relationships"
The company launched a customer loyalty incentive programme, WRewards, in 2010 and have seen increased consumer spending. They wish to continue with incentives like the WRewards programme.
(Woolworths Holdings Limited, 2011)
4. FINANCIAL AND GENERAL PERFORMANCE OF WOOLWORTHS 2007-2011
4.1 Profits
Two types of profits will be considered namely operating profit and net profit after tax and interest.
4.1.1 Operating Profit
a) Definition of Operating Profit
"Operating profit is the difference between gross profit and operating expense." (Paul Barrow, 2005).
b) Importance of Operating Profit
"It is an important measure of trading performance because it shows how profitable a business is before taking into account the financing costs" (Barrow, 2005).
c) Trends 2007 - 2011 of Operating Profit for Woolworths' Holdings Limited
The following graph illustrates the trends in the operating profit for Woolworths' holdings Limited over the last five years.
Graph 6 Operating Profit for Woolworths 2007 to 2011
(Woolworths Holdings Limited, 2007 - 2011 )
The operating profit fluctuates over the period. It goes up from 2007 to 2008 then decreases from 2008 to 2009. From 2009 for the rest of the period there is growth.
4.1.2 Net Profit after Tax and Interest
a) Definition of Net Profit after Tax and Interest
Paul Barrow defined Net profit after tax as: "the amount of profit (or loss) the business has made after all business costs but before any tax has been allowed for, including tax" (Barrow, 2005).
b) Importance of Net Profit after Tax and Interest
Net Profit after tax and interest indicates to a company the share of profit that can be given to the shareholders as dividends (Du Toit, et al., 2010).
c) Trends 2007 - 2011 of Net Profit after Tax and Interest for Woolworths Holdings Limited
The following graph illustrates the trends on the Net profit after tax and interest for Woolworths Limited over the last five years.
Graph 7 Net Profit after Tax and interest for Woolworths 2007 to 2011
(Woolworths Holdings Limited, 2007 - 2011 )
The graph shows net profit decrease from 2007 to 2008. Then it increases from 2008 to 2009 and continues to grow for the rest of the period.
4.2 Profit Margins
4.2.1 Definition of Profit Margins
"Profit margins provide an indication of the percentage of turnover that shows as profit after certain deductions are made" (Du Toit, et al., 2010).
Woolworths displays their gross profit and operating profit margins in their financial reports. Gross profit margin indicates the portion of a company's turnover that is realised after cost of sales has been deducted this amount is then divided by the turnover (Du Toit, et al., 2010).
Operating profit margin provides an indication of the percentage of turnover that is realised as profit after a provision has been made for normal operating expenses (Du Toit, et al., 2010).
4.2.2 Importance of Profit Margins
Profit margins indicate the profit levels of a company. This is important for any company in order to measure profitability. This measure of profitability will inform the company of whether it is reaching its objective of making a profit (Du Toit, et al., 2010).
4.2.3 Trends (2007 - 2011) of Profit Margins for Woolworths Holdings Limited
The following graph illustrates the changes in Woolworths' gross profit margins and operating profit margins from 2007 to 2011.
Graph 8 Woolworths Profit Margins 2007 - 2011 (WHL Financial Reports, 2007-2011)
The gross profit margin grew consistently for this entire period, with the highest growth in 2010 and 2011. It saw growth of 6.1% over the entire period. The operating profit margin declined from 2007 to 2009 by 3%. In 2009 to 2010 operating profit margin increased by 0.2%. This growth continued in 2011 by 2%.
4.3 Market Share
4.3.1 Definition of Market Share
The estimated sales for the product or service based on the available capacity and given the level of competition and trading (Strydom, et al., 2009).
4.3.2 Importance of Market Share
It is important for a company to know what its market share is since this should give an indication as to how much of a good or service it should produce. Having this knowledge can prevent waste or even an under supply of goods and services (Strydom, et al., 2009).
4.3.3 Trends (2007 - 2011) of Market Share for Woolworths Holdings Limited
The following graph illustrates the market share for Woolworths clothing and food from 2007 to 2011.
Graph 9 Market Share for Woolworths 2007 - 2011
(Woolworths Holdings Limited, 2007 - 2011 )
The market share for food in 2007 and 2008 remained unchanged at 9.2%. In 2009 for food market share declined by 0.7% and further declined by 0.2% in 2010. The market share for clothing also declined from 2007 to 2009 by 1%. In 2010 there was a growth in market share for clothing of 0.8%.
4.4 Public Relations
4.4.1 Definition of public relations
Public Relations are the management function which evaluates public attitudes, identifies the policies and procedures of an organisation with the public interest, and executes a program of action (and communication) to earn public understanding and acceptance (Rensburg & Cant, 2003).
4.4.2 Trends (2007 - 2011) of public relations for Woolworths
For the trends over the last five years various highlights will be considered that affected the public perception of Woolworths Holdings Limited. These occurrences range from awards to allegations of intellectual property theft.
Woolworths Public Relations in 2007
A 2007 highlight sees Woolworths resolve a price spat involving an in-store franchisee. "Serious Foods, an in-store franchisee of Woolworths, owner Dennis Hamer accused Woolworths of limiting his ability to compete. He accused Woolworths of having a pricing system which made it difficult for him to discount foods that made it unable for him to compete effectively with other in-store franchisees. He further mentioned that Woolworths did not allow him to advertise that he had cheaper prices than other Woolworth's outlets. (Mawson, 2007).
The outcome was that Woolworths agreed to run an in-store price management system, allowing managers and owners to set discount prices (Mawson, 2007).
b) Woolworths Public Relations in 2008
In 2008 Woolworths received an international award from the World Trade Congress. It recognised Woolworths as the "International responsible trader of the year" (Woolworths Holdings Limited, 2007 - 2011 ).
Woolworths Public Relations in 2009
2009 saw Woolworths revamp its look to offer consumers an experience of "discovery and excitement" according to Andrew Jennings, MD of Woolworths' group retail segment. In an article in Business Day Jennings further states that a handful of stores were renovated to a new way of thinking and group design (Mawson, 2009).
This new offering includes a mix of food, fashion, beauty, home ware and digital product this is to meet the needs of both local and international visitors (Mawson, 2009).
Woolworths Public Relations in 2010
In 2010 Woolworths decided to go back on a decision that it made earlier to stop stocking "religious and political magazines". This was in the light of protest and uproar received from political and religious movements. Churches and Christian groups threatened to boycott Woolworths. A political group the Freedom Front Plus called their initial decision to stop selling the magazines "shortsighted and discriminatory" (Benjamin, 2010).
Julian Novak the head of perishables at Woolworths announced that the magazines will be put back onto shelves within a week of them been approached by the various interest groups. Novak further explained that Woolworths had "no intention to remove political magazines unless they were found not to be commercially viable" (Benjamin, 2010).
Woolworths Public Relations in 2011
In 2011 allegations of foul play rose against Woolworths by a soft drinks company, Frankie's, based on a small farm in Midlands Kwa-Zulu Natal. Frankie's accused Woolworths of making the labelling of its beverage the same as the Frankie's beverage. Frankie's claimed that this led to confusion by customers of their beverage (www.bizcommunity.com, 2011).
Woolworths MD Zyda Rylands responded to these allegations by saying: "we believe that the allegations made against Woolworths are unfounded. We have not infringed any copyright, intellectual property nor registered trade mark (www.bizcommunity.com, 2011)."
5. CONCLUSIONS (MENIQUE MALAN)
5.1 THE PERFORMANCE OF VISION AND MISSION OF WHL
When referring to Woolworths Holdings Limited's mission statement, we establish that their company strives to be the best retail company in the world as well as leading all their customers through excellent products and services. What makes this company unique is that after 80 years of service, still claiming that their products and services would be rendered with excellence WHL makes sure that everything the company was implemented to do, would not suffer as they are still a leading brand that is growing continuously. We could also see that they are achieving the vision they predicted for the company regarding the customers vision because out of most brands, Woolworths would still be the chosen store.
5.2 THE PERFORMANCE WHL HAS ON THE SOUTH AFRICAN ECONOMY
Whereas the profits are concerned (operating profit, net profit and profit margin) we can see that all these profits has decreased but as the years continued they have certainly increased again. All these profits are what the business itself owns after all expenses or deductions have been acquired for. This shows us that WHL Company is still very profitable and everything Max had planned this company to be once he started it, he has accomplished.
5. CONCLUSIONS (SIXOLISILE MAHLASELA)
5.1 WHL living up to their Vision, Mission and Goals
As I have analysed the mission, vision and the goals for Woolworths holding limited one of the things that stood out for me was is the commitment that lead to efficient service that I get service that I get as a consumer. WHL claims that they understand their customers well and strive to offer a simpler, better and faster business, I support these statements because in my experience in shopping at Woolworths, I do not have to spend or waste time to look for the items I want to purchase like other retail shops.so I believe that they are on the right track and they are living up to these statements [Mission, Vision] they will achieve their objectives.
5.2 WHL shaken first by the South African Economic fluctuations
When I look at WHL's performance in comparison with the rest of the economy the GDP and Employment fluctuations did not have significant effect on the company, but with the changes in CPIX especially in 2008 where it was significantly high. WHL's net profit was at its lowest. This means even though prices were high people did not spend and this could be that Woolworths is expensive already and people would rather spend on other goods or retailers.
5.3 WHL to continue mounting for the next few years. Ceteris Paribas
According to Interest rates changes in when it was at its highest peak in 2008, WHL had an increasing Gross profit Margin and it looks like its increasing at in increasing rate. I believe this is going to continue for the next couple of years, since the Company is not only growing in South Africa but in Asia and Australasia as well.
Although they lost a 0.9 market share on the last three years there is a positive focus and this was only the effect of global crisis, says Simon Susman Executive Chairman of WHL. With the analysis of the company and how they performed and able to adjust to depression crisis, I agree with him. With good leadership and values they will continue doing well for a very long time.
5. CONCLUSIONS (JOSEPH MAISELS)
5.1 Woolworths' performance falling short of company mission, vision and goals and can lead to loss of brand value
Woolworths has experienced a number of incidents over the last five years which have tainted the company's brand. Considering that one of their main goals is to be a "brand value-driven business". More should be done to make sure that their decisions lead to positive feedback from the company's stakeholders. The decision they made to stop stocking religious and political literature lead to threats of boycotting by religious and political groups. Decisions like this can lead to losses of loyal customers and due consideration needs to be given before these decisions are made.
The loss of market share in 2010 could have been as a result of this decision to pull back the literature. The losses in net profit in 2010 are likely to also have stemmed from the decision to recall the religious and political literature.
5.2 Woolworths performs well despite economic pressures and may do well in the future
GDP figures for this five year period indicate that the country was in a recession between 2008 and 2010. This means that production decreases and that household have less money to spend. The employment rates also suggest that there was recession since it dropped in 2008 indicating job losses. Despite this Woolworths made a high operating profit in 2008 and experienced drops in 2009. It was able to grow its operating profit in 2010 and 2011.
This shows that despite difficult economic pressures Woolworths was still able to maintain profits. It was affected by the slowing down of GDP but could still generate a net profit for all this period. The net profit was significantly high in 2009 and dropped in 2011 followed by an increase 2012.
Woolworths kept consistent their Market share in both clothing and food. There were no major changes to these amounts which demonstrate that despite an economic recession they maintained their market share.
For the entire period Woolworths maintained a remarkable growth rate in their gross profit margins. This is noteworthy since in an economic recession goods and services cost more. Growth in profit margins indicates that Woolworths were able to cut on costs of goods and services.
5.3 Woolworths will continue to do well in the next 5 years
WHL should continue to implement strategies that will continue to generate profits for them. They will continue to be successful if they are mindful of their decisions. I believe their profits will grow in the future. They can also be a truly "brand value-driven business" if they are more mindful the decisions they make and the impact they have of stakeholders of the company.
