Out of WOW

I am out of WOW and whilst I can't predict share prices my thoughts are its not going to improve over the Long run. Whilst Woolworths has been an excellent retailer in the past the competition in Australia is arguably just getting started. Here is my reasoning and the history behind it.

Woolworths under Roger Corbett had a golden run. Competition was poor. Coles were doing their best to ruin their own business and companies such as Franklins gave little opposition, finally selling off. Suppliers were stuck with the duopoly and it was the suppliers who became the price takers. Woolworths was King and if you wanted to sell volumes of product you had little choice. Many suppliers went under and today's food supply chain looks very different to that of 10 or even 20'years ago. Golden Circle sold to Heinz, deregulation of the dairy industry, consolidation of farming groups etc etc. Basically larger but fewer supply points. Woolworths reigned supreme and margins were the highest of any retailer in the world. Now let's fast forward to today.......

Woolworths is a powerhouse and a mature business with the best of its growth opportunities behind it.
Coles was purchased by Wesfarmers and through world class store re-fits and new management teams it is arguably running a superior store experience with new concept stores including cafes, accessible iPads, pizza shops etc.
Aldi has entered the market place! it is a true discounter and a private company that can run at finer margins without pesky shareholders. Note Aldi has never failed in any country it has ever entered and has always taken market share. Let's not forget Costco who are just warming up. We will leave Metcash and the small resurgence of independent retailers including online that didn't exist under Corbett.

With the consolidation of the food supply chain I spoke about earlier, suppliers now have options. They arguably have a greater ability to reject the low prices once offered by Woolworths. Export markets have been opened up into China and they no longer depend on one company to by their goods. Most retailers are now paying the same prices for there goods. The scale has tipped and growth will now have to come down to Woolworths marketing to drive sales, population growth and market penetration. They can no longer compete on price without taking a bath on their margins. They will loose margins and market share IMO over time. Sorry to those of you who are pro Woolworths, they have been a wonderful company and may continue to do so over many years. As a long term investor I find their are hurdles they will eventually fall over and as such for me, they have lost their WOW.