Avoiding major culture shock

Changing the culture of a 160,000-strong workforce across half a dozen retail businesses is one of the biggest challenges Wesfarmers Ltd will face if it manages to buy Coles Group Ltd.

And it’s a challenge the Western Australian-based conglomerate is already facing up to.

Through an integration committee established by Wesfarmers, work has already started on identifying and recruiting staff for senior positions within Coles.

They are a band of between 200 and 300 people that will become critical to instilling Wesfarmers’ performance-orientated culture into the retailing giant’s operations, hopefully helping the conglomerate integrate the retailer, and doubling its size in the process.

Coles shareholders are due to approve the sale of the retailer in early November.

It’s is a deal most analysts believe is a near certainty, due to a noticeable lack of alternative bidders for Coles and Wesfarmers recently sweetened deal, which provides Coles shareholders with some longer term security in the form of price-protected shares (see page 12).

Enhancing its bid for Coles earlier this month has effectively given Wesfarmers a head start on the mammoth task of integrating a workforce about four times the size of its existing staff of 40,000 people.

In return for offering price-protected shares to Coles shareholders, Wesfarmers negotiated the right to form an integration committee. The committee will be headed by former Wesfarmers CSBP boss Keith Gordon and will include Bunnings boss John Gillam, Wesfarmers human resources manager Chris Ryan, Coles human resources general manager Ian Clubb, and Coles chief executive John Fletcher among others.

While the committee is largely concentrating on the staffing issues, it is also working on integrating finance functions and working through various statutory requirements – if Wesfarmers buys Coles it will need to prepare half-year accounts about six weeks later.

But importantly for Wesfarmers, the committee allows it to be consulted on various decisions made by Coles, in particular, ones that could affect Coles after Wesfarmers takes control of the business, most likely in late November.

“Some of the decisions they make will have a consequence, which will become more evident once we own the business,” Wesfarmers chief executive officer Richard Goyder told WA Business News.

“We have a consultative arrangement.”

While Mr Goyder said Coles continued to operate the business, he did reveal that the conglomerate could, and would, ask the retailer to delay certain decisions until after Wesfarmers had assumed control if it felt it was necessary.

Through the committee, Wesfarmers is also gaining more detailed information on Coles’ Kmart business, the future of which remains undecided under Wesfarmers management.

But Wesfarmers has decided to split the Coles business into four. Coles’ food, liquor and petrol operations will be housed in one ‘everyday needs’ business, while Officeworks will join Bunnings as part of a ‘big box’ division, leaving Target and Kmart. If Kmart is kept, it will be operated separately.

Injecting the Wesfarmers culture across all the retailer’s businesses is a task Mr Goyder admits is huge. There would be “bits of Coles that would be culturally good and bits that won’t be so good”, he says.

Getting the culture right, according to Mr Goyder, will involve a top-down approach.

“I’m confident in our ability to get the right senior team in place and if you get the right senior team in place they will get the next layers right,” Mr Goyder told WA Business News.

He said it was critical that good store management was in place across all Coles’ business units.

The biggest job at hand will be turning around the Coles supermarket divisions, which have struggled to perform while arch rival Woolworths has consistently managed to grow sales.

“Our view is that a lot of the work to be done in the supermarkets needs to be done in store and having good store management in each of those places is critical,” Mr Goyder said.

He said the group would focus on lifting the profile of the store manager role, which could involve giving store managers greater control of a store’s layout and product range.

He said the cultural shift would take place only after the behaviours and outcomes Wesfarmers was seeking were in place, and reinforced.

Mr Goyder added that Coles’ supermarket business had largely underperformed against Woolworths because of supply chain issues.

And while the Wesfarmers team would work to address various contracts, a desire to change the culture and Coles’ current relationships with its suppliers was apparent in the organisation.

“They [Coles] are not getting the co-operation from suppliers that they could,” Mr Goyder said.

He said suppliers found both Woolworths and Coles tough operators but suppliers had a better relationship with Woolworths because they believed they gained something out of the relationship.

“Whereas with Coles they get pushed but they then don’t get any positives coming out of it,” Mr Goyder said.

He said that, over time, there would be greater opportunities for local suppliers to get products into local stores.

“There is an opportunity to make sure that in certain regions you are getting supply from local suppliers that people really want,” Mr Goyder said. “One of the things we are determined not to do is to replicate Woolworths. There is room for a differentiated offer.”

•The writer has a financial interest in Coles.