Big W and Woolworths could be about to change forever under bold plan

Woolworths is being urged to let go of its Big W chain and separate the New Zealand operations into a new business by some of the supermarket's major investors.

First Sentier Investors portfolio manager Dushko Bajic said at a forum in Sydney this week he had suggested the changes to new Woolworths CEO Amanda Bardwell at a recent meeting, reported the Australian Financial Review .

'We would just love you to be a simple Australian supermarket,' Mr Bajic said he told Ms Bardwell, who replaced former CEO Brad Banducci this month.

Mr Bajic said Woolworths, which is larger than major rival Coles should also deliver a significantly larger profit, yet this wasn't the case.

Coles has simplified its business into two main divisions of food and liquor, while the Woolworths group has seen significant losses as the Big W stores and the New Zealand stores struggle.

'Reinvest back into your business, your prices and make the most of your superior supermarket locations [this] won't be able to be matched by your competitor.' Mr Bajic said

'[Big W] is a business within the [Woolworths] portfolio that's just destroyed capital.'

In August, Coles announced an after-tax profit of $1.1billion, while Woolworths net profit of $1.7billion was reduced by a $1.5billion impairment courtesy of New Zealand operations where it has expanded aggressively in recent years.

Ray David, portfolio manager at Blackwattle Investment Partners, agreed that 'in theory' Woolworths should be far outperforming Coles given its size, greater network of stores and greater logisitics assets.

Woolworths group has a 37 per cent market share of the grocery sector in Australia while Coles Group has 28 per cent, according to research firm Statista.

Other investors who spoke to the AFR on condition of anonymity because of the sensitive financial discussions agreed that the New Zealand business should be spun off.

Big W's main problem appears to be a struggle to compete against rivals Target and particularly Kmart which dominate the discount department store sector.

Kmart is owned by Perth-based Wesfarmers and saw earnings jump 25 per cent to $958million in the last financial year.

Wesfarmers also owns wildly successful hardware business Bunnings which Woolworths tried to take on with its Masters Home Improvements stores between 2009 until their closure in 2016.

Masters was a joint venture by Woolworths and US-based Lowes Home Improvements and suffered more than $3billion in losses.

One investor told the AFR closing the Big W stores would be a difficult tasks considering that it had warehousing and logistics benefits that the supermarket business relied on.

Ben Gilbert, the head of research at investment advisory firm Jarden, said maximising returns would be the main topic of focus for both investors and Ms Bardwell as she takes the reigns.

Woolworths Group was contacted for comment.