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Have Woolworths Limited and Wesfarmers Ltd found a way to supercharge their growth?

Just when you thought the supermarkets giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) couldn’t get any bigger and had to look to new business lines such as financial services or hardware to grow their revenue base, along comes the news that Woolies and Coles, along with IGA-banner owner Metcash Limited (ASX: MTS) are preparing to scale down and open stores with footprints of just 200 to 400 square metres.

According to a report in the Fairfax Press, local real estate agents have been enlisted to identify properties that would be suitable for the ‘convenience store format’.

When you consider the number of 7-Elevens, and other independent corner stores spread across Australia, the size of the ‘convenience dollar’ that Woolies, Coles and IGA are missing is huge. While new entrants certainly won’t be welcomed by the incumbents, for shareholders in these three stocks the revenue upside could be significant.

Qualitative vs. Quantitative

In general, it could be said that stock analysis falls into two tasks. There is qualitative analysis and then there is quantitative analysis. With Wesfarmers having divested a number of assets including its substantial insurance division, today it is more and more about Coles. This makes Wesfarmers less of a conglomerate and more of a retailer – like Woolworths.

With Woolworths entering the hardware sector these two companies are becoming increasingly alike, making it increasingly difficult for investors to determine if there is any significant difference in their long-term growth profiles.

Arguably, this means the major lever investors must pull to determine the investment case of one against the other is quantitative. On this subject, investors face the unenviable task of looking for value in two of the most heavily scrutinised and arguably most efficiently priced blue-chip stocks on the ASX!

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