It has been a lacklustre performance over the past 12 months by leading blue-chip retailers Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). In fact, both stocks have under-performed the 1.8% gain in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with share price returns of -10.4% and -3.9% respectively.
Unfortunately for shareholders the outlook for these two giants of the supermarket industry is also somewhat benign given the significant uplift in competition entering the Australian marketplace from the likes of US-based warehouse sales operator Costco and German-based discount supermarket chain Aldi. Investors will note that the competition has already claimed a victim in the form of Metcash Limited (ASX: MTS), which has seen its share price plunge 49% over the last year.
Despite the competitive headwinds there is hope for these two leading retailers…
According to research firm IBISWorld, online grocery sales in Australia are set to jump by nearly 15% in 2015 to $2.2 billion!
IBISWorld describes the online grocery sector as "evolving rapidly" with food and beverage now in the top five for categories purchased online in Australia.
Word of warning
The biggest potential roadblock to Woolworths and Wesfarmers' dominance of the online grocery sales and delivery market could be online retailing giant Amazon Inc, which is reputed to be sniffing around the Australian marketplace. In the US, Amazon currently offers consumers (in certain regions) AmazonFresh, a home delivery service of groceries which are ordered online through its website. Given Amazon's vast skills in managing inventory and logistics, it could turn out to be a major future competitor for Coles (owned by Wesfarmers) and Woolworths.
Coles and Woolworths have a first mover advantage and powerful entrenched infrastructure – this could mean they reap the rewards from increased online grocery sales, however investors also need to be alert to the fact that they are not immune from a new entrant (or a current entrant with an improved online offering).
