Amazon's new threat to Woolworths and Coles

Just when you thought things were looking up for our two largest ASX-listed supermarket chains, Amazon.com lobs another grenade.

| 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

Just when you thought things were looking up for our two largest ASX-listed supermarket chains, Amazon.com lobs another grenade.

The Woolworths Group Ltd (ASX: WOW) share price and Coles Group Ltd (ASX: COL) share price will be under the spotlight on news that the US online shopping giant is starting a discount subscription service for a range of everyday grocery items.

Up to this point, both stocks are outperforming the broader market and are trading at or close to their highest level this calendar year. The Woolworths share price and Coles share price have jumped 28%.

In contrast, grocery distributor Metcash Limited (ASX: MTS) and the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index have gained around 20% each.

Amazon eating Coles' and Woolies' pie

Investors will be wondering if the golden run for Woolies and Coles might be coming to an end as Amazon is trying to take away a big reason why shoppers go into their stores.

The online only retailer launched Subscribe & Save a year after introducing Amazon Pantry offering of non-fresh food grocery items.

The new subscription service will offer customers an extra 10% savings and free delivery on a range of products from toilet paper, pet food and nappies if they commit to purchasing these items regularly, according to the Australian Financial Review.

Amazon claims there are thousands of eligible items under Subscribe & Save and it believes the service would be a hit because it customers save both time and money.

How the subscription service can hurt

There isn't a subscription fee for the service. Shoppers choose the products that they often buy and choose a deliver frequency. Orders can be changed or skipped, and while prices of individual items can change, shoppers will get a 10% discount off the total.

Coles and Woolworths will be watching closely as the service can undermine their "one-stop" strategy and cut the all-important foot traffic in their stores. Supermarkets lure shoppers through the doors by selling some essential everyday items at a loss. The idea is to get shoppers to buy other profitable items while their browsing.

Same store sales at these supermarkets have been inching up in recent times, thanks in no small part to grocery price inflation. If Subscribe & Save proved to be successful, this key performance metric will come under pressure.

Both supermarket giants have been ramping up their online offering to combat the rise of Amazon and are counting on their fresh food offering to give them an edge.

However, other rivals like Aldi are attacking Coles and Woolies on that front. The Supermarket Wars aren't about to come to an end anytime soon.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

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 Scott Phillips.

More on Share Market News

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Three businesspeople leap high with the CBD in the background.
Share Market News

Boom! ASX 200 blasts to new record highs

ASX 200 investors just sent the benchmark index into uncharted territory.

Read more »