Is the Woolworths Group Ltd (ASX: WOW) share price a buy?
Despite investors sending the Coles Group Limited (ASX: COL) share price up 3.2% in reaction to its fresh new strategy, the Woolworths share price is also up 1.1%. Normally what is good for one supermarket is bad for the other.
The Coles strategy centres around growing its online sales, using automation to improve efficiencies, growing private label sales and becoming the most sustainable supermarket with its products and operations. If this plans works then Woolworths may find itself losing some of the customers it has gained over the past couple of years.
It would be a race to the bottom for Coles and Woolworths to try to fight Aldi and Costco on price. Therefore, they have to come up with different ideas.
Service standards can certainly be a selling point. Indeed, Woolworths has just announced a plan that will see new divisions being created where employees will be expected to receive training to be able to offer better advice on, for example, the best meat cuts and how to cook products.
But, employees have argued that Woolworths has simply re-labelled the current jobs and is asking them to reapply for similar positions for less pay, according to an article in the Australian Financial Review.
I can completely understand why businesses want to cut costs to save the bottom line, but it doesn't help staff morale and it also reduces the purchasing power of people who are probably their own customers.
Foolish takeaway
Whilst no business is under the obligation to employ more people than necessary, or pay more than the market rate, the move could be shooting itself in the foot if it leads to lower service levels, which is why some shoppers choose Woolworths over Aldi.
When a business looks more to cutting costs because the top line is too hard to increase, I think that's a worrying sign.
Woolworths is trading at 24x FY20's estimated earnings. This doesn't seem like an attractive price to me for a business with so much price competition, even if it is a fairly defensive idea.
