Woolworths has already put around $40 million extra into e-commerce, advanced analytics and “digital demand generation” capabilities so far in the first half of the financial year.
The retailer said in a trading update that the investments covered improvements to its subscription e-commerce delivery business, the standing up of its new Q-Retail business unit with Quantium, and in attracting “digital and data talent more broadly”.
It said that the technology-related investments amounted to “choices” it is consciously making, and would be “dialled up and down based on the speeds we want to go" in these areas.
Future investments into digital and data beyond the first half - which is due to be reported on in late February next year - would depend on circumstances down the track.
Woolworths said its e-commerce sales were up by 50 percent in the half so far, and said it “comprised over 100 percent of Woolworths Supermarkets sales growth.”
“While the profitability of e-commerce continues to grow, e-commerce sales are lower margin, which together with a decline in store-originated sales has also impacted overall profitability in the half,” the company said.
CEO Brad Banducci said that “end-to-end stock flow and operating rhythm” of its stores was impacted by the Delta strain of Covid.
He said similar operating inefficiencies impacted the online business as well.
“We had moments of it where it was really going well and we had great plans but then a whole series of things ended up in a bit of gridlock in terms of underlying operating efficiency of the business,” he said.
Woolworths had been able to prove out some concepts for the online business, such as “that direct-to-boot versus pickup at a service desk works very well”.
However, he said that the retailer had not been able to “monetise” investments it had made into in-store picking algorithms.
Banducci also said there were “hidden costs” in the in-store picking model, particularly around out-of-stock items and “trying to therefore do [product] substitutions” on orders, and rebalance the order costs and payments.
Banducci added that the company’s customer fulfilment centres or CFCs, which handle about 15 percent of e-commerce orders, had also experienced some constraints, though he added that these would “slowly unwind … in the new year.”
Woolworths flagged an increase in Covid-related costs for the first half that would likely result in lower earnings in its grocery business for the half.