Woolworths not as ‘cheap’ as Coles

Woolworths’ (ASX: WOW) management was unlikely to have enjoyed reading the latest polling by Roy Morgan Research last week. The polling suggests that the ‘Down Down’ advertising campaign by Coles supermarkets, owned by Wesfarmers (ASX: WES) has resonated with customers, with around 44.6% of customers believing Coles has low prices. This compares with 42.7% of Woolworths’ customers who believe the store has low prices.

Interestingly, the supermarket chain which has the strongest association with low prices wasn’t either of the majors, it was German-based entrant Aldi. Aldi has achieved around 90% association with its customers of being low-priced. This is a remarkable achievement particularly when you consider the enormous advertising budgets of Coles and Woolworths — yet less than half of their customers associate low prices with either giant.

Since Wesfarmers purchased the Coles business in November 2007, its share price has underperformed Woolworths. However given the diversity of Wesfarmers’ business, especially its exposure to the resource sector, it is not a simple comparison. Perhaps more importantly, both stocks have significantly outperformed rival Metcash (ASX: MTS) and the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past six-and-a-half years.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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