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Watch out bakers and pizza makers, Woolworths is baking up growth

In Woolworths’ (ASX: WOW) full year results presentation, the company again highlighted its plans to have a fresh bakery in every store. With 91 in-store bakeries opened during the 2013 financial year the company now boasts fresh bakeries in 78% of its store network. Not only will fresh bakeries encourage more ‘homebrand’ bread sales but the bakery network will also help ‘Food to Go’ such as sandwiches, salads and freshly made barista coffee expand throughout the network.

Effectively Woolworths’ stores are about to become take-away bakeries and cafes and just to make sure they have as many customer preferences covered as possible, the supermarket giant also plans to continue to roll out its pizza bar offering. Currently there are 19 fresh pizza bars within the network with a target of 300.

These plans are bad news for a number of companies that will soon be competing with Woolworths in the baked bread, café, takeaway lunch and pizza space.

Goodman Fielder (ASX: GFF) is a major baker and supplier of bread to Woolworths. An increased focus and promotion by the supermarket of its in-house baked bread offering is a negative for Goodman Fielder. Retail Food Group (ASX: RFG) owns Brumby’ Bakeries, Michel’s Patisserie, Crust Pizza and Pizza Capers. It stands to face stiff competition in its bakery and café offering given its stores are often located in shopping malls that also house a Woolworths’ supermarket.

Finally, Domino’s Pizza Enterprises (ASX: DMP) stands to lose as well. It is easy to envisage shoppers picking up their pizza dinner from Woolworths while they purchase their other grocery items rather than making a separate stop or order to Domino’s.

Foolish takeaway

While it is easy as an investor to get overly concerned about a new threat from an unknown, it is always important to keep things in perspective. While Woolworths is an outstanding retailer and its strategies should not be ignored, Goodman Fielder, Retail Food Group and Domino’s are also impressive retailers who will respond to any new competitive threats and protect their market share.

Woolworths has just announced a juicy 71 cent fully franked final dividend. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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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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