Coles planning for growth away from Wesfarmers Ltd (ASX:WES) with small stores

Coles is going to grow its network with small stores in preparation of leaving Wesfarmers Ltd (ASX:WES).

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The soon-to-be separate Coles Group is planning on expanding its store network with small format stores after exiting Wesfarmers Ltd (ASX: WES).

After Coles has left Wesfarmers it will contain Coles Supermarkets, Coles Financial Services, Liquorland, Vintage Cellars, First Choice, Coles Express and a 50% interest in flybuys and freehold property holdings. A pretty good business portfolio.

Wesfarmers shareholders will receive one Coles share for every Wesfarmers share that they own. The plan for dividends is that the two separate businesses will pay roughly the same level of dividends as a combined entity would have at the start.

Coles is already a national supermarket chain, but it has plans to grow in inner-city and 'local' locations by rolling out Coles Local. These are half the size of a regular supermarket and will only stock one third of the number of products – around 8,000. This number will still allow people to do a full supermarket shop. It will have a focus on fresh food and convenience meals.

The idea is to challenge Metcash Limited (ASX: MTS) supplied IGAs, Harris Farms and Woolworths Group Ltd (ASX: WOW) Metro stores.

Foolish takeaway

I really like the idea of a smaller store as it allows Coles to expand into locations there simply wasn't enough space for a full-size supermarket. This could be important because more of us are now living in high-density locations.

Whilst I have no interest in investing in Coles because I think the margins are going to drop over time, I think this strategy makes Coles a better investment idea than it was before.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares could rise 20% to 35%

These shares are being tipped to deliver market-beating returns by analysts.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Share Market News

2030 forecast: As Australia's iron ore export earnings decline, copper will rise. What does this mean for BHP shares?

BHP is expanding its iron ore and copper production.

Read more »

Keyboard button with the word sell on it.
Broker Notes

8 ASX All Ords stocks downgraded to sell ratings

Find out which shares are out of favour with the experts.

Read more »

Woman smiling whilst shopping in a clothing store.
Dividend Investing

Why this quality ASX 300 dividend stock is tipped to surge 54%

A leading fund manager forecasts significant outperformance from this quality ASX 300 dividend stock.

Read more »

A group of businesspeople clapping.
Broker Notes

Bell Potter names more of the best ASX 200 stocks to buy in June

These stocks could be best buys this month according to the broker.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Market News

Why Clarity, Coronado Global, Iperionx, and Lynas shares are roaring higher today

These shares are having a strong session on Thursday. Why are investors buying them?

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Opinions

The ASX 200 is approaching its all-time high. Here's why I'm not buying shares

I'm not seeing what the broader market is.

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Qantas, Resimac, Tyro, and Soul Patts shares are falling today

These shares are having a tough session today. But why?

Read more »