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Please don’t do this, Woolies

In Australia, Woolworths (ASX: WOW) is nearly indomitable. Even better, the mega-retailer is still growing, posting a sales increase of 2.5% in the most recent quarter. This is despite stiff competition from Wesfarmers (ASX: WES), operator of Coles, Liquorland and Bunnings, among others.

Yet Woolworths chief executive Grant O’Brien is saying the company may look to expand overseas. This could be a costly mistake. While O’Brien hasn’t identified which country or countries are in Woolies’ sights — this is pure speculation — the company may open stores in Asia and even possibly the U.S.

Metcash tried and failed in Asia

A decade ago, Metcash (ASX: MTS) announced ambitious plans to expand into Asia, moving to buy a stake in a grocery distributor in the Philippines, Suy Sing Commercial Corp. In 2002, the operator of IGA and Cellarbrations stores said it expected to take in $1 billion in sales from its Asian operations within just the first three years.

We know how this story ends. As The Age reported, less than a year into the proposed expansion, “Chief executive Andrew Reitzer said the company couldn’t agree to basic elements, such as ‘how one does business’ with its proposed partner, Suy Sing Commercial Corp”.

Tesco failed in the U.S.

More recently, U.K. retailer Tesco (LSE: TSCO) attempted to enter the U.S. market, spending more than £1 billion opening Fresh & Easy stores on the West Coast.

In its home market and others, Tesco is a dominant grocery retailer. (In fact, Tesco is the world’s third largest retailer by revenue, ranking just behind Walmart and Carrefour. Woolworths comes in at number 17.)

Tesco had retailing expertise on its side and also conducted extensive market research — in fact, executives reportedly moved in with American families to better understand their food-buying habits. Tesco also spent a huge pile of money. And yet, “Fresh & Easy never got close to achieving the sales densities of veteran west-coast retailers such as Trader Joe’s and Whole Food Markets”, as The Guardian has reported.

Today, Tesco is reported to be considering selling Fresh & Easy. A further announcement is expected April 17, as Tesco reports its full-year results.

The bottom line for Woolies

No one questions Woolies’ incredible retailing prowess in Australia and New Zealand, and some of its operations remain in high-growth mode, including the Masters chain of home improvement stores. Perhaps Woolies’ best bet is simply to identify another retail opportunity Down Under.

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A better investment than Wesfarmers?

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 Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

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