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Woolworths insures to ensure growth

Growth is increasingly hard to come by for the big supermarkets, including Woolworths Limited (ASX: WOW), Coles – owned by Wesfarmers Limited (ASX: WES) and Metcash Limited (ASX: MTS). In an effort to drive the top line, all three are expanding into new categories, such as Woolworths’ home improvement stores, Masters, and Metcash’s recent expansion into auto accessories retailing. They are also ramping up efforts to generate additional revenues from their store footprints.

Woolies announced on Monday, 6th August, that it has expanded its insurance offering, launching car and travel insurance in addition to its current pet and life insurance products. The company will also launch home and contents insurance in the coming months.

The news shouldn’t come as a surprise, as Coles had already taken the step of adding insurance to its products and services range back in 2010. The company currently offers car and home insurance, which was a logical step as its parent Wesfarmers has its own insurance arm.

Our local retailers are mirroring the model pioneered by Sainbury’s and Tesco in the UK market, where supermarket retailers have long offered banking and insurance products as part of their standard range. In fact, Tesco has its own bank brand, which offers products as diverse as insurance, credit cards, and even personal loans and mortgages.

The Woolies offering is being supplied in partnership with The Hollard Group, an international insurance provider, and Swiss Re, one of the world’s largest insurance companies.

Insurance and banking services lend themselves to being “white-labelled”, where non- insurance companies can provide the front-end services to an insurance company’s products. It makes sense for supermarkets to offer these products, as they can utilise their large number of stores and access to potentially thousands of customers.

The practice of white-labelling is not so different to insurance companies operating under several brands such as Insurance Australia Group’s (ASX: IAG) businesses – NRMA, CGU, SGIO and Swann Insurance. Other examples include the RSPCA offering pet insurance, also backed by the Hollard Group.

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Motley Fool writer/analyst Mike King owns shares in Woolworths.  The Motley Fool ‘s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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