Australia’s giant supermarket and retail chain, Woolworths (no relation to its UK and US namesakes) is launching itself into the highly competitive mobile market by becoming an MVNO utilising the resources of Optus.  In a move reminiscent of UK’s Tesco, Woolworths (better known as Woolies to locals) will attempt to use its massive network of outlets to carve out a profitable niche.  But it may not be that easy.

Woolies intentions were announced back in November 2008 but the launch was delayed by (surprise, surprise) problems integrating its back-office IT systems with Optus.  Of course, this is no mean feat, but essential in providing real-time recharges to customers at the checkout.  Woolies currently processes over 21 million pre-paid mobile recharge transactions for a number of operators through its 3,000 stores each year.  Converting these customers to its home brand offering will require something different, something very attractive or very unique.

Pricing is the first weapon in Woolies arsenal. Customers will be offered a flat rate for voice calls of AU15 cents flagfall (call setup) and AU15 cents for every 30 seconds of conversation. Text messages will cost AU15 cents each. Credit expiry is 100 days. This looks like great value when compared to Optus’ own rates of 35 cents flagfall (call setup) and 39 cents for every 30 seconds of conversation with text messages costing 25/29 cents each.  Credit expiry 30/60 days based on size of recharge.

Sounds too good to be true, right?  Well, there is a catch.  Woolies believes that the market it is addressing is primarily interested in good, cheap voice calling so it will only be offering 2G service.  Yup, its customers will only have access to the slower, less exciting but great for voice, 2G service.  At that price, who would complain?  The other catch is that this is a SIM only service.  SIM cards can be purchased for a measly AU$2 but there no subsidised handsets being offered, and in a country where handset subsidies have been the major market driver, this could hold back take-up. It is also a major difference with the Tesco model employed so successfully in the UK to garner over two million subscribers.

Woolworths is also comparatively new to the loyalty card market, compared to Tesco, but recent moves to tie its Everyday Rewards program to the Qantas Frequent Flyer program have seen over one million make the link.  Tesco offers just about everything a loyal customer could want including a wide range of financial and insurance services.  Everything purchased via Tesco earns points and points mean free gifts, holidays and discounts to the loyal throng.  The same cannot be said about the Aussie shopper who usually dumps loyalty for the cheapest price.  Nevertheless, Woolies is banking on their program to attract mobile prepaid customers and offer it some protection from German discounter, Aldi, which is making inroads into the market with TV campaigns highlighting permanent discounts on many popular grocery items.

The Australian market is also heavily oriented towards post-paid with the majority of subscribers on contract. The pre-paid market is heavily youth oriented and many who do not qualify for post-paid accounts due to their credit standing.

Woolies may be banking on its past success at selling subsidised petrol and breaking the stronghold of the major oil companies. But that all came down to price.

What may be the greatest challenge is succeeding as an MVNO in Australia where many others have failed.  Of course, having a highly recognised brand name will help, but having a guaranteed and profitable revenue stream from non-telco products may be the real secret.