Outgoing David Jones CEO Iain Nairn (left) and Woolworths CEO Ian Moir. Credit:Louise Kennerley Woolworths SA has in the past played down speculation that it plans to enter Australia's $88 billion food and grocery market. Mr Moir told journalists last year the Australian food market was very competitive and Woolworths SA lacked a supplier base, making it difficult to to compete against the established chains. "We haven't incorporated any thoughts on food into our thinking," Mr Moir said. However, it is understood that Woolworths SA now sees scope to leverage its food retail expertise to not only significantly improve David Jones food business, which has not been updated for 10 years, but to open upmarket food stores similar to Woolworths' South African supermarkets once it has established relationships with suppliers. "Food and food services are important elements of the existing and future David Jones and as in all areas of our stores we are focused on providing our customers with a continually improving experience and product offer," a Woolworths spokesperson told Fairfax Media on Wednesday.

"We have recently appointed a new GM of Foods, Pieter De Wet, who has extensive experience gained at Woolworths South Africa to drive this important area of our business." Long-term growth opportunity In a report on Wednesday, JPMorgan's well-connected South African retail analyst, Stephen Carrott, said Woolworths's entry into the Australian food market represented a long-term growth opportunity for the retailer. "The food halls make money but David Jones hasn't done anything with them for 10 years," said one source. "When they opened they were cutting edge but now everyone does it better." David Jones opened a chain of gourmet food stores dubbed Foodchain in 2000 but was forced to pull the plug three years later after racking up losses of more than $120 million.

In South Africa, Woolworths generates almost 30 per cent of earnings from food and is now one of the nation's fast-growing food retailers, with annual sales of R19.7 billion ($2.1 billion) and 374 locations. Most of the food stores are in Woolworths' clothing shops but it also has some stand-alone outlets. In the past Woolworths focused on fresh food and pre-prepared meals – similar to UK retailer Marks & Spencer – catering to upper income customers. In recent years the retailer has added dry and packaged groceries to its range and now stocks about 11,000 products. Woolworths is also believed to be close to making a decision to sell two of its four CBD stores, in Market St, Sydney, and Bourke St, Melbourne. The retailer is believed to have hired Rothschild to gauge interest in the stores, which could raise as much as $400 million. "We are looking at all available options for our properties in Sydney and Melbourne CBD with an objective of delivering world class department stores in both locations but no decisions have been made at this time," a spokesperson said. Meanwhile, Woolworths' strategy to boost sales at David Jones by stocking a wider range of Country Road brands and using data analytics to better understand customer needs appears to be delivering early dividends.

Woolworths told South African investors last month that David Jones' sales for the year to date had risen 5 per cent, implying 10 per cent growth in the July-half after 2 per cent growth in the first half. David Jones has been discounting heavily to clear space for Woolworths' private label brands – including Studio W, Re:, JT One, Distraction, and Soaps – which are due to be rolled out to stores in August.