Wesfarmers Ltd (ASX: WES) has seen its share price rise close to 9% in the past six months, while arch-rival Woolworths Limited (ASX: WOW) has seen its share price sink more than 10%.
The difference in performance of the two groups is mainly attributable to the performance of their largest businesses – Coles and Woolies supermarkets respectively.
Supermarkets
Coles' supermarkets have thrashed Woolies over the past 27 quarters (that's coming up to 7 years) when it comes to same-store-sales growth, its profit margins have been growing while Woolworths is under pressure to slash its margins. Over the same period, Coles has overtaken Woolworths when it comes to sales per square metre, most likely as a result of Woolworths focusing on expanding its number of stores, rather than growing sales at existing stores.
Woolworths still has the lion's share of the market but is falling, while Coles is catching up.
And there's doesn't appear to be an end to Coles' growing domination anytime soon. Woolworths needs to continue cutting its margins to levels around or below its rivals to entice customers back into its stores.
Both retailers face intense competition from Aldi, not to forget IGA – backed by Metcash Limited (ASX: MTS) – which is fighting hard to remain relevant.
Hardware
Woolworths' decision to exit the Home Improvement market and sell or close down its Masters stores has virtually handed market leadership to Wesfarmers' Bunnings. The entry of Masters had forced Bunnings to watch its margins, and the results were small falls in Bunnings year-on-year quarterly earnings margins. The loss of Masters as a viable competitor could see Bunnings increase its margins – although Metcash's Mitre 10 could loom as a viable competitor, given it has more stores and could acquire Woolies' Home Timber and Hardware wholesaling business.
Discount variety
Woolworths Big W is also struggling to compete against a resurgence at Wesfarmers' Target and Kmart. Same-store sales are going backwards at Big W, while Kmart is powering ahead – recording same-store sales growth of 10.8% in the last quarter. Target is still struggling – but nowhere near as badly as Big W. Last quarter same store sales growth was negative 0.8% for Target, but Big W saw negative 4.5% same-store sales growth.
Liquor
If there's one sector where Woolies dominates, it's in liquor with Dan Murphy's dominating the sector. According to recent Roy Morgan research, Dan's holds 26.3% market share, with another Woolworths brand, BWS, in second place with 17.9% market share. Wesfarmers' Liquorland and First Choice hold 10.8% and 6.3% market share respectively.
Foolish takeaway
Woolworths will come back of that I have no doubt – but while it is struggling with its various problems – Wesfarmers has the ascendancy and could hold it for some years.
