Here's why Wesfarmers Ltd could be a better bet than Woolworths Limited

Wesfarmers Ltd (ASX:WES) has a plan to beat Woolworths Limited (ASX:WOW) in the shopping aisles.

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This week investors had the opportunity to gain a better understanding and insight into the plans of leading retailer and conglomerate Wesfarmers Ltd (ASX: WES) thanks to the group's strategy day.

The day is attended by analysts, fund managers and other interested parties and a copy of the 261-page presentation from the event was also released to the ASX.

While the presentation covered all divisions of the Wesfarmers' empire, given the share price of competitor Woolworths Limited (ASX: WOW) is near a three year low, it was the discussion of the Coles business (owned by Wesfarmers) which drew particular attention from investors.

Here are some of the key strategies Coles plans to use to improve its position within the domestic supermarket industry and which could pose a risk to Woolworths' world-leading profit margins.

Coles aims to "boldly extend into new channels and services". Financial services such as banking and insurance are often considered likely areas of extension for the likes of Coles. The group's acquisition of General Electric's share of the credit card joint venture (Coles now owns 100% of the business) is an example of this theory playing out.

Coles is aiming to take the mantle from Woolworths by a renewed "focus on freshness". This aim is being developed through closer relationships with suppliers and improvements to the supply chain and store operations.

Coles is investing to "extend value leadership".  This strategy is occurring in numerous ways including over 300 price reductions at Liquorland and placing over 1,900 products on "everyday value" across the Coles network.

Headwinds vs Tailwinds

While Woolworths is certainly not standing still in the face of competitive threats to its market leading position from not just Coles but also Aldi, Costco and Lidl, it is arguably facing headwinds while Coles has tailwinds.

Those headwinds are due to the market-leading profit margins which Woolworths has to try and protect along with the major distraction of the new hardware business which is not going to plan.

In contrast, Coles was a poorly performing business when Wesfarmers acquired it and there is still a tailwind of efficiency gains and improvements to be made across the business. The battle is far from over!

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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