Let's face it, the grocery supermarket business is increasingly moving towards the "Shop 'n' Save" concept and away from the "price-quality" mantra. The Aldi, Costco Wholesale and Wal-Mart store's of the world are simply thriving because they offer tangible savings to shoppers daily, a concept known in the retail world as "Every Day Low Price" or EDLP.
Woolworths Limited (ASX: WOW) has been witnessing a falling sales trend at its grocery supermarkets. The major reason is the shifting of consumers towards discount price grocery retailers. Coles has been running a successful "down down prices are down" campaign for some time now, and Aldi is well known for selling everything cheaply under its in-house brands.
In, Australia the grocery shopping landscape is changing. Few years back, mainly Woolworths was considered a major destination for groceries and Coles was the second best alternative. And Coles was facing a tough time competing in its grocery and supermarkets business. But now Coles has got the house in order and Aldi has become a major player while Costco wholesale is expanding.
The disruption caused by discount price grocers is not unique to Australia. British grocery retail giant Tesco PLC's share price has dropped by 57% over the last five years. Tough competition from the likes of Aldi and Lidl and an accounting scandal to inflate profit are the key reasons for the share price decline.
Tesco has been struggling for years to win back lost market share from discount grocers without any success. This may prove that once discount grocers firmly establish themselves in a market, a permanent market share loss may occur for older established price-quality grocery retailers.
From Tesco's example, it can be inferred that Woolworths could possibly end up losing permanent market share. And the news coming out from Woolworths is not encouraging, throughout the year Woolworths share price has been on a downward trend, having lost 33% value in one year.
Investors are concerned about the options available to Woolworths to counter the competitive forces. It is no doubt a tough situation, apart from the grocery business, Woolworths's home improvement and general merchandise businesses are also underperforming.
A focus back on the grocery supermarket business, and becoming more of a "Shop 'n' Save" will definitely help in making it tougher for competition to steal more customers. And when the new management takes the helm of Woolies, it must try new strategies to get the Mojo back for Woolies.
Foolish takeaway
Tesco has tried many different strategies over the years to win back lost customers and market share, but none has worked concretely. Woolworths is in a similar situation, but in a different market. However what is obvious is that grocery business has and will become more competitive putting margins under pressure. There is a risk of a price war among grocery retailers as well. What appears likely is that in the short term, things might get worse before they get any better. So a Foolish investor may want to just watch this stock and wait until some good news starts to flow from Woolworths.
