David Jones to Expand into Food Retail

When South African retailer Woolworths outlaid $2.1 billion nearly three years back to purchase venerable department store chain David Jones, food wasn’t an essential element of its turnaround program.

All that changed in six months, when Woolworths identified a gap in the 70 billion dollar lunch café and retail meals and 27 billion dollar food service markets.

Not just had Australian customers lost faith in “large Food” — Woolworths and Coles — David Jones, formerly famous for its supermarket, had “dropped off the map”, David Jones chief executive John Dixon stated on Thursday as the merchant introduced its own Gourmet food plan.

Mr Dixon intends to invest at least $100 million in the following three years creating a world class retail food company which will distinguish David Jones from rivals and also shield it from web design agency created, pure-play internet stores, and create adequate returns in its own right whilst boosting sales in different categories like fashion, accessories and beauty

Several spectators believe the future of department stores relies on food as an important component Mr Dixon, who conducted British department store Marks & Spencer’s food industry for five years.

Dixon is banking on consumers increasingly perceiving retail as a leisure activity and social action; a place to meet

He also believes that mimicking successful trends like all day breakfast and deli inspired meals pushes footfall and compels a higher frequency of store visits and increases dwell time. “We know when our customers spend more time with us they spend more money with us”, he said.

Strategically, food will play an essential role in terms of the way David Jones could differentiate themselves from different retailers and it is also something the internet pure-plays cannot do. Food and carefully thought out styling choices will be crucial to the success of David Jones in the future

Three-pronged plan

Below a three-pronged strategy controlled by celebrity chef Neil Perry and mind of meals Pieter de Wet, David Jones intends to open big 1700-2500 square-metre food hallways in its own flagship shops, 500-800 square-metre small-format food hallways in regional and suburban shops and 300-500 square-metre stand shops in high density places.

Even the flagship food hallways will have restaurants and cafes, butcher Shops, bakeries and fish counters and market around 8500 product lines across 1004 brands, such as ready foods, freshly cut and pre-cut meat, vegetables and fruit, cheese, antipasti and packed gourmet grocery stores.

About 70 percent of this scope will take the David Jones label and the equilibrium of brands is going to be sourced from renowned Australian and international providers, such as Tasmanian steak from Cape Grim, Sonoma Bread and Serendipity icecream.

David Jones’ food plan leverages the experience and systems of Woolworths, which creates approximately 60 percent of its earnings from food. Last year Woolworths’ biggest food provider, South African-based In2Foods, created a joint venture together with Melbourne-based vegetable and fruit wholesaler Yarra Valley Farms, resulting in two manufacturing centers, based in Melbourne and Sydney.

The initial flagship food hall is due to open in Bondi Junction in the very first week of August along with a more compact format food hallway will start in David Jones’ fresh Wollongong shop in October.

Mr Dixon failed to state how many standalone food shops he had plans for, but stated the initial convenience stores, that will sell packaged and fresh food and coffee but won’t own a food support offering, are very likely to start in under 12 weeks.

JP Morgan analyst Stephen Carrott quotes the food industry will Generate earnings of $700 million over five years, compared to food sales of $55 million in 2016.

Chasing the ‘halo’ effect

Mr Dixon failed to offer sales or earnings goals but is confident food will make attractive returns and supply a “halo” effect, raising sales throughout the shop.

The food retail market in Australia is a huge marketplace – David Jones is cautious to not bring yet another supermarket offering to the marketplace. The company feels they can put together quite a special food proposal and receive a fantastic return on it. However reactions by both physical and online retailers both have a substantial risk; it is likely several aggressive marketing strategies will be utilised such as adwords, intensive EDM and heavy media spend

“We know and we’ve seen it ourselves in Bondi, where we closed the old food hall, that we can see the importance of food in terms of the halo effect it provides into the rest of the store,” he stated. “When we get customers to shop across more parts of the store they are clearly more valuable to us.”

Analysts, however, believe success isn’t assured, stating Woolworths’ growth plans for David Jones thus far — especially private label — have experienced mixed success and the merchant might need to execute the meals plan nicely. Woolworths stocks are trading in three-year lows.

Arch rival Myer is adopting a similar approach, finalising strategies to role out over a dozen fresh food and service initiatives during the next 12 Months, such as soda and permanent food pubs/cafes, barber shops and spas, bowling alleys and even playgrounds and child care.