Woolworths Limited [ASX:WOW] shares were trading at $31.31 this afternoon, indicating a climb of 1.52%.
The supermarket sector used to be characterized by a persistent battle between Woolworths and Coles Group Limited [ASX:CGL] owned by Wesfarmers Ltd [ASX WES]. But over the past couple of years, the duopoly has been getting bit at the heels by other competitors.
Aldi came in and stole the show for a while, while smaller IGA stores — owned by Metcash Limited [ASX:MTS] — have gathered speed. And in light of recent news that German superstore Kaufland will be reaching our shores soon, the fight for our grocery dollars is only going to get more aggressive.
How is Woolworths managing to keep its head above water?
Why the Woolworths Share Price is Up by Nearly 2%
Despite some share price volatility, the superstar group have managed to stay on track with steady revenue growth, consistently paid out attractive dividends over the past 12 months and is still holding over $40 billion of market capitalisation.
Woolworths food sales have increased at a faster rate than Coles for the last several quarters. And while Aldi’s low price model may have been attractive when it was a novelty, various food safety and labour hire scandals could be scaring some customers away.
If you look at the marketing strategy of all three supermarkets, Woolworths is the only one to emphasise quality over value. They’re ‘the fresh food people’, while Coles and Aldi are more about low prices. In the height of the GFC, a value emphasis might have been the way to go, but times are changing.
Various consumer data indicates Australians are becoming more and more concerned with healthy eating and wellness — interests that lend themselves more to quality than cost. Also, the 2018 Global Consumer Insights Survey, conducted by PWC, has found that Australians are much more positive about the economy.
This could potentially see an increase in Australians paying higher prices for food they perceive as healthier, fresher, and generally more attractive — the heart of Woolworth’s marketing campaign.
What’s Next for Woolworths?
The stock is currently trading above its 52-week range.
It’s been a rough day on the stock market, so it’s nice to see an Aussie household name leading the charge. If Woolworths can continue its intelligent advertising and market domination, shareholders can exhale with relief.
But the future, of course, is always uncertain. German superstore Kaufland is yet to arrive, and Aldi has just been named the most trusted brand in Australia.
If Woolworths needs to lower prices to compete with these companies, then this could hurt profits in the long run.
Best to look at the whole picture, and not just annual results.
Editor, Money Morning
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