Supermarket wars: Coles now a Woolies landlord

Battle intensifies after Coles buys lease to one of Woolworths’ most profitable stores

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

The ongoing battle between our two major supermarket owners appears to have taken a new turn, with news that Coles has become the landlord of Woolworths Limited’s (ASX: WOW) highly profitable Neutral bay store.

Coles – owned by Wesfarmers Limited (ASX: WES) is reported by The Sydney Morning Herald (SMH) to have bought the lease to the high volume, high sales stores, after finding it came with a short lease that expires in 2014, with a 10-year option to extend. Woolworths has been leasing the site for nearly 18 years and reaping more than $75 million in sales a year, according to the SMH.

Woolworths was apparently surprised to find out Coles was its new landlord, when informed by Fairfax media. A spokesperson for Wooolworths said, “this is a surprise, and it’s not common practice by any means”. Coles has remained silent about its intentions for the purchase, although it’s likely that Woolworths will take up the 10 year lease option, and pay rent to Coles. Coles executives have apparently conducted a risk analysis of its own supermarkets, should Woolworths attempt to counter-attack.

The SMH believes there is an element of revenge in the takeover of the Neutral Bay Woolworths, after Kmart, also owned by Wesfarmers, lost a prime location in Katoomba, after operating for 30 years in the Blue Mountains town. Woolworths bought the lease for the site in 2000, then waited 12 years for it to expire and kicked Kmart out, forcing Coles to buy a new site and spend millions on development, ending up with an inferior site with lower turnover.

Competition between the two for market share has intensified as they have both expanded into similar areas in petrol and convenience stores, hardware, pokies and hotels, and liquor. Struggling to compete against the two are the Metcash Limited (ASX: MTS) supplied IGA stores, Aldi and US giant Costco, which has recently opened a number of small stores in Australia.

Foolish takeaway

The Australian Competition and Consumer Commission (ACCC) is conducting an investigation into the supermarket owners’ practices after complaints by suppliers, as well as their aggressive property strategies. Media reports have also suggested a UK style code of conduct could be adopted in Australia, after the UK faced similar issues from its supermarket retailers.

In the market for high yielding ASX shares? Get three “Rock-Solid Dividend Stocks” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »