Woolworths Group (ASX: WOW) is intensifying its cost-reset strategy in New Zealand, where its food business operates on a razor-thin 1.9% EBIT margin, a fraction of the 5.5% achieved in Australia. The retailer has proposed moving its New Zealand customer care operations to Sydney, potentially affecting around 130 roles, as part of a broader effort to streamline operations and leverage group-wide systems.
The proposal, first reported by 1News, would see the closure of the New Zealand Customer Care Centre, with services absorbed by the group support team in Sydney. Employees have until September 15 to provide feedback. While the job impact is modest relative to Woolworths' total workforce, the move underscores the financial pressure in New Zealand, where the fiscal 2026 EBIT margin of 1.9% leaves little room for error.
Margin disparity highlights structural challenges
New Zealand Food generated NZ$1.90 in EBIT for every NZ$100 of revenue in fiscal 2026, compared with A$5.50 for Australian Food. The gap is even more stark in the second half, when New Zealand's margin narrowed to 1.5% as EBIT fell 7.7% year-on-year. Gross margin was hit by stock losses, price investment, and higher freight costs, while the rollout of a new store operating model disrupted sales. Management noted that cost controls partially offset these headwinds.
The company's annual results, released August 26, showed group sales rose 3.6% to A$71.54 billion, with EBIT before significant items up 12.7% to A$3.11 billion and net profit after tax up 15.4% to A$1.60 billion. The final dividend increased 15.6% to A$0.52. However, New Zealand's performance was more subdued: revenue grew 2.5% to NZ$8.49 billion, but EBIT only rose 8.8% to NZ$163 million.
Strategic rationale and risks
Woolworths says integrating New Zealand customer care into its Sydney-based group support team could harness group systems and scale, aligning with its goal of building a "simpler, more sustainable New Zealand business." Group CEO Amanda Bardwell framed the broader objective in the annual result: "These cost pressures challenge us to be even more efficient." Above-store savings across the group totaled around A$400 million in fiscal 2026.
However, the proposal carries risks. The union representing affected staff says remote workers may find limited similar opportunities. Savings from the move have not been detailed and could be insignificant. Reduced support costs might be offset by service disruptions, higher wage demands, or lower customer satisfaction scores. Investors will be watching whether the cost reset translates into improved service and stronger margins in New Zealand.
Market reaction and outlook
Woolworths shares closed at A$39.62 on September 2, up 0.7% on the day and 2.0% above the August 25 close, though 1.7% below Monday's A$40.31. The stock has been supported by the strong annual results, but the New Zealand challenges remain a drag. In the first eight weeks of fiscal 2027, New Zealand sales rose 4.2%, though management maintains a cautious outlook on trading conditions.
The next catalyst for shareholders is a sales update scheduled for October 28. No company statements are due this week. The proposal to shift customer care roles is still under review, and its impact on margins will be closely monitored. For now, the earnings momentum is clearly in Australia, while New Zealand must prove it can convert lower overheads into better performance.
Woolworths' decision reflects a broader industry trend of centralizing back-office functions to cut costs, but it also highlights the delicate balance between efficiency and service quality. With a 1.9% margin, any misstep in execution could have outsized consequences for the New Zealand business.
