Woolworths' underpayment costs have ballooned to $390 million – and the company plans to make 1350 roles redundant

• Woolworths has announced it owes underpaid employees around $390 million, higher than original estimates.

• Woolworths initially estimated it underpaid staff by about $300 million.

• Woolworths is also tearing down three distribution centres in Australia to make way for two new automated centres in Sydney.

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Woolworths now estimates that it owes underpaid workers $390 million – far more than originally announced.

Back in October 2019, Woolworths admitted that it owed salaried staff up to $300 million as it found "the number of hours worked, and when they were worked" weren't factored into some workers' salaries.

Now, the supermarket giant has discovered underpayments in its hospitality group ALH Hotels, which brings its total remediation costs to around $390 million (not including interest and other costs).

"The Group remains committed to fully rectifying any payment shortfalls across all Group businesses as quickly as possible," Woolworths Group CEO Brad Banducci said in a statement. "We thank everyone for their patience through this process."

Woolworths is building new automated distribution centres

Woolworths has also announced plans to build two distribution centres at Moorebank Logistics Park in Sydney. It includes an automated regional distribution centre and a semi-automated national distribution centre, with construction to be done by the end of 2023.

These new sites, however, will replace three other centres: Woolworths’ Sydney Regional Distribution Centre in Minchinbury, its Sydney National Distribution Centre in Yennora and the Melbourne National Distribution Centre in Mulgrave. According to the Sydney Morning Herald, the loss of these centres means up to 1350 employees will be made redundant.

Per he SMH report, Banducci wanted to redeploy some of staff members either to the new sites or into other roles at Woolworths.

The company estimated $176 million will be spent on redundancy for workers affected by site closures.

"It will be a number of years until the closure of our existing facilities, which will provide the opportunity to explore meaningful redeployment opportunities for our team," Banducci added in a statement. "We are also committed to a long-term investment in supporting all of our teams with the skills and training required for the workforce of tomorrow."

Woolies is spending between $700 and $780 million on the two distribution centres over the next four years, with an initial 20-year lease with logistics and infrastructure company Qube Holdings.

The new sites build on the company's Melbourne South Regional Distribution Centre. They are expected to reduce Woolworths' supply chain costs and hold 30% more products than its current sites.

"The planned sites, which are subject to NSW Government planning approval, will materially increase our capacity for growth, improve efficiency, advance localised ranging efforts and deliver better and safer experiences for Woolworths stores, team and customers," Woolworths Group Chairman Gordon Cairns said in a statement.

How the coronavirus pandemic has affected the business

The early days of the coronavirus pandemic led to panic buying that stripped many shelves across Woolworths' stores bare. And Woolies – along with fellow supermarkets Coles and Aldi – was forced to enforce limits on items like toilet paper and rice. Over the past few months, Woolies gradually lifted restrictions before completely ditching them on June 15.

Woolworths now estimates its COVID-19 related costs to be between $220 and $275 million in the fourth quarter of 2020. This was mainly for store hygiene, social distancing and efforts to make its supply chain more flexible - factors which are starting to roll back.

In terms of hotels, sales have been lower than the year before due to coronavirus restrictions.

But with the uncertainty around when hotels can go back to operating at normal levels, Woolworths doesn't think a demerger of its Endeavour Group business - a combination of its Endeavour Drinks and ALH businesses - will happen before 2021.