The label on the pack says Woolworths, but many of the ready meals and freshly prepared lines behind it come from in2food, a convenience-food maker that has supplied Woolworths for more than 30 years. Soon the label and the maker will belong to the same company. On Thursday Woolworths said every regulatory condition on its purchase of in2food had been met, with completion expected within a month.
It is a sizeable operation. in2food produces premium private-label ranges, from freshly prepared meals to long-life and bakery lines, in eight factories that turn out more than 3.2 million packs every week. Its revenue tops R5 billion a year, and Woolworths is its largest customer, with food-service and wholesale buyers at home and abroad making up the rest. It will keep running as a standalone business under its current leaders.
Why Woolworths is betting on food
The deal was agreed in March, under then-CEO Roy Bagattini. It will close under Sam Ngumeni, who ran Woolworths Food before taking the top job in June, and whose first annual results in September set out a plan that fits in a line: rebuild the group around food.
Food is already most of Woolworths. It made up 66.5% of group sales in the year to June, and grew faster than the rest of the group. Fashion, beauty and home went the other way. Its sales still grew, but price cuts in kidswear, extra promotions and clearing out stock that had not sold squeezed it hard in the second half, and its operating profit fell 14.1%.
So the money follows the food. The results call premium food the group's strongest source of competitive advantage, and say capital will go, in the company's words, "where WHL has the right to win".
What it could mean in store
Woolworths' own case for the deal is about the shelf. Owning the supplier should make its food supply sturdier and get new products into stores faster, which for shoppers could mean more variety and fewer gaps. Woolworths expects the purchase to add to earnings, and is paying in cash from existing cash and financing facilities, though neither side has said what it costs.
Clothes and homeware could feel it the other way. The results recast beauty and home as add-ons that stretch the food relationship into a wider lifestyle offer, and a review is under way to decide how much each part of the group should get. If food takes more of the space and the money, the rest of the store may end up with less.
Rival food suppliers have been left a way in. The Competition Commission recommended the deal on condition that Woolworths keeps buying from competing suppliers for a set period, and that no one loses their job because of the merger while a moratorium runs. Neither period has been published, so for now Woolworths will own one of its key suppliers and still be obliged to buy from that supplier's rivals.
