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Why Woolworths may win the food retail fight

In the two-company food retail market of Australia, brand offerings can make all the difference. Woolworths (ASX: WOW) is now carrying Dick Smith brand foods, an organization that donates all profits to charities and prides itself on being Aussie-owned, with products grown and made in Australia.

In an interview with AdNews, founder Dick Smith noted that his company’s model is based on the Paul Newman line in the U.S., and hopes that the launch of his new foundation and a brighter spotlight at Woolworths will go a long way for his company.

For now, the new products are being piloted in Woolworths’ Balgowlah store, but a positive reception could see Dick Smith nationwide. The new products will also allow users to pick the charity they wish Dick Smith to donate to, by taking a picture of their purchased item and texting it to the company along with the intended recipient.

Smith seems more than happy to partner with Woolworths over Wesfarmers(ASX: WES) Coles, who he believes may be focusing too much on low prices. Dick Smith products sell at a higher price to competitors, and Smith told AdNews that “if you keep doing the low prices thing that Coles is doing, Aldi and Costco win that battle because they don’t have the same costs or staff. You have to go premium and quality.”

Foolish takeaway

The Australian grocery retail market is exceedingly tight. Woolworths and Wesfarmers are each attempting to grab more market share, but with different strategies. Woolworths has gone for more expensive brands with potentially higher margins. That line-up now includes Dick Smith, and is a major reason why Coca-Cola Amatil‘s (ASX: CCL) failing SPC Ardmonda fruit business has been able to regain some footing as a local food option across Australia.

Coles is carving out a cheaper niche, capturing an important market segment that is more price sensitive. But as Mr. Smith warned, that niche has seen several new players recently, and it’s less certain whether Coles can keep up with prices heading down.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.


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