MENU

Are Woolworths Limited and Wesfarmers Ltd at risk from online disruption?

It might be sad but it’s true – you don’t see many book stores any more. Twenty years ago it might have just been an idea, but today Amazon Inc. has turned the book retailing industry on its head, resulting in significant structural change and major disruption for incumbent operators.

Could supermarkets be headed the same way?

An article published in The Australian Financial Review on Tuesday titled, Little guys take on Woolies and Coles, explored the success of various online grocery retailers and concluded that so far they are having “varying degrees of success”.

For major supermarket retailers including Woolworths Limited (ASX: WOW), Metcash Limited (ASX: MTS), and Coles which is owned by Wesfarmers Ltd (ASX: WES), the threats are real even if they are yet to come to fruition. The threat of online-only entrants, coupled with the increasing demand by customers for online shopping and home delivery is certainly why Woolies and Coles have been investing significant capital in establishing an online shopping capability and delivery service.

Who the winners will be?

It’s hard to say at this stage, however unlike other industries such as newspapers where firms such as Fairfax Media Limited (ASX: FXJ) waited until it was too late to adjust to structural changes brought about by the internet, the supermarket retailers appear to have observed the lesson. They have been early adopters of technology which should have them well placed to weather future structural changes.

Who else could win?

Another beneficiary of the move online could be Toll Holdings Limited  (ASX: TOL). The company has a strong position in domestic freight and logistics and could be a natural choice for disruptive online entrants looking for a delivery partner.

A better income stock...

Many investors own Woolworths and Wesfarmers for the secure dividends they pay - it may not happen but a structural shift in supermarket retailing could one day put their dividends under threat! It's always important to focus on where a company is headed not where its been...that's why at The Motley Fool we're so excited about investment advisor Scott Phillips' #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now.

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.