Can Woolies be Saved?
A keen follower of Montgomery, Brittain Ladd – who is focused on Cross-Border Commerce, Global Supply Chain Management, Logistics, and Business Strategy – let me know of a column he penned on May 17 about saving Woolies.
It’s worth sharing and here’s an excerpt:
“If we fast-forward to 2020, what will the grocery landscape look like within Australia? Based on the completion of several What If? modeling and analysis exercises and game theory strategy session, I believe the following will more than likely occur:
• ALDI will continue to take market share and do so at a pace faster than industry analysts currently predict. Sales will exceed $16B in 2020. Note: If Woolworths is acquired by a PE firm, I estimate ALDI will be the primary beneficiary thus increasing their market share and sales revenue above current estimates.
• Unable to face the new reality of grocery retailing and competition, and unwilling to place the required laser-like focus on reducing costs; divesting all but food, fuel, and liquor businesses; and continuing to believe they can compete on price; Woolworths will experience continued lost sales, falling market share, and a falling share price. Woolworths will be acquired by a PE firm no later than Q2 of 2018. Once Woolworths is acquired, they will quickly cease to be a factor in the grocery market.
• Unfortunately for Coles, their world is going to grow much darker. ALDI, Lidl, and Costco will mount an extensive price war against Coles, a price war that will severely impact Coles. In fairness to Coles, they have a strong leadership team who will not make it easy for any retailer to take market share. However, when confronted with three retailers utilizing harsh competition, Coles will be the underdog.
I do not take pleasure in what I have written about Woolworths but without drastic changes, what I wrote will more than likely come true. But does it have to? Isn’t there something that Woolworths can do? Is there no hope? Let me remind the reader that the title of this post is A Beautiful way to Save Woolworths.
Although challenging due to regulations in Australia governing business and competition, and made even more challenging by the intense and somewhat toxic environment between Coles and Woolworths, a strategy worth exploring is collaboration between Coles and Woolworths on two key areas of their businesses: procurement and supply chain/logistics. I need to inform the reader at this stage that I received several different opinions on the topic of collaboration between Coles and Woolworths from several key officials in Australia who asked not to be named. Each agreed with me that what I am about to propose would provide the desired benefits to Coles and Woolworths. However, there was disagreement on whether or not such collaboration would be approved and/or whether or not Coles and Woolworths would ever be willing to collaborate.
The full column can be found here.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Garry Peck
:
Comparing Aldi to Woolworths is like comparing a grapefruit to a pink lady apple.
Congested and poor shop layout,limited choice,no trolleys or bags,long queues,little service without a smile.
Definitely only for the budget conscious, and not for the exuberant who enjoys shopping.
karl
:
Coles and Woolworths, who collectively control 80% of the Australian grocery market, working together on procurement and supply chain logistics? Can you imagine the field day the ACCC would have?
Not a chance.
tim mckeown
:
a fascinating read, it hadn’t ocurred to me that WOW might go belly up. But why does he say that if WOW is acquired by PE (which he predicts) “Once Woolworths is acquired, they will quickly cease to be a factor in the grocery market”.
If fixing the WOW grocery business isn’t PE’s game then what would it be?
Roger Montgomery
:
Sounds like a reason to get in touch with him yourself Tim. I suspect time frames will be part of the answer!
Luke Joseph
:
It may not be particularly relevant, but I noticed there was no discussion of the impact of ALDI on IGA stores.