What: The expansion of retailer Woolworths Limited (ASX: WOW) into other lines of business continued this week with Australian Food News reporting that the supermarket giant has reached an agreement with Telstra Corporation Ltd (ASX: TLS) for the provision of wholesale mobile products.
So What: The telecommunications deal follows a similar arrangement which had expired between Woolworths and Optus, owned by Singapore Telecommunications. Given the superior coverage of the Telstra network and the renewed focus of Woolworths on expanding its customers' "share of wallet", arguably this deal could prove more successful than the prior one with Optus.
Now What: There is an argument that branded telcos such as Telstra and Optus "cannibalise" their brand by offering agreements to wholesalers, which allow companies such as Woolworths to establish their own telco brand. As such, this alliance could be a reason to buy Woolworths, but arguably not Telstra.
It's not just telecommunications where incumbent providers are at a competitive risk from powerful established retailers…
Industry leading businesses such as Insurance Australia Group Ltd (ASX: IAG) now face competition from Woolworths in personal insurance lines such as home, contents and car insurance.
Likewise, the major banks are under increased competition in the credit card space. Macquarie Group Ltd (ASX: MQG) recently struck a deal to issue the Woolworths' branded credit card.
Interestingly, in the case of Macquarie, this deal is a great way for the bank (which lacks the bricks-and-mortar retail footprint of the other major banks) to expand its credit card business. Similarly, insurers who can do a deal with the likes of Woolworths stand to expand their gross written premiums in what is a very competitive market.
