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Wesfarmers and Woolworths go head-to-head in celebrity chef battle

The competition between Australia’s leading supermarkets continues at its frenetic pace this month. Coles, owned by Wesfarmers (ASX: WES), announced just days ago an exclusive partnership with world famous chef Heston Blumenthal.

The partnership will see Heston create a range of products available exclusively through Coles that have a focus on Australian and Indigenous ingredients. Heston’s arrival means that Coles now has two celebrity chefs endorsing its products — the other being Curtis Stone.

In almost immediate response, rival Woolworths (ASX: WOW) has now announced its own partnership with equally famous chef Jamie Oliver. The Woolies partnership aims to bring better, healthier and affordable fresh food to Australian consumers. Accompanying the partnership was the announcement that all caged whole eggs sold in-store would be phased out by 2018 as reported here.

Both Wesfarmers and Woolworths are tight-lipped about their advertising spend, with amazingly no mention in either company’s annual report about advertising despite its importance to both retailers. Of course details of the cost of these celebrity partnerships is unlikely to be divulged either. The heightened level of competition and battle for the consumer dollar has no doubt led to an increase in advertising and marketing budgets at the supermarket majors.

One company bound to be benefitting from the increased spend is STW Communications (ASX: SGN). STW has a collection of over 75 specialist marketing and communications companies which means it captures a significant share of domestic advertising budgets. At its recent half-year results (it has a December financial year end) STW reported a 7.9% increase in revenues to $176 million and a 7.2% increase in underlying profit to $19.3 million.

Foolish takeaway

While advertising companies may gain from a head-to-head celebrity battle it’s hard to say if either Wesfarmers or Woolworths’ shareholders will. More likely it will allow each company to retain market share but not necessarily gain any.

For the third player in the supermarket space, Metcash (ASX: MTS), it’s unlikely to be a good outcome. While there is the potential for Metcash to sit the battle out and maintain its market share while Woolies and Coles spend tonnes of money on advertising, Metcash also runs the risk of losing further market share unless it ups its advertising budget too.

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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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