What: Australia's leading retailer Woolworths Limited (ASX: WOW) has just announced plans to spend $650 million in new stores and infrastructure and to add more than 2,000 jobs in Victoria over the next three years.
So What: As part of these plans Woolworths is set to open at least 20 new stores and refurbish 40 existing stores within its current 582 Victorian store network at a cost of around $150 million. To support this planned growth in its store network, Woolworths is building a new $150 million meat processing facility and a new state-of-the-art grocery distribution centre in Victoria which has a price tag of around $350 million.
Now What: While the share price has failed to react positively to the announcement, investors taking a long-term view of the company will no-doubt be pleased to see the company tackling the competitive threat posed by international entrants Aldi and Costco head on.
With the share price of Woolworths down almost 30% over the past 12 months, compared with a fall of just 4% in the share price of rival Wesfarmers Ltd (ASX: WES) which owns Coles, shareholders of this blue chip are desperate for signs that Woolworths' management are finding a solution to the current pressures that the supermarket chain is facing.
What's next: While there is no doubt that Woolworths will have to invest heavily or cut its industry-leading margins to stay ahead of the pack, the size of this investment in Victoria could be a telling sign of what could be required Australia-wide as Aldi and Costco increase their footprint in other states.
On the other hand, the fact that this industry giant has the firepower to reinvest these kinds of sums back into its business is a reminder that Woolworths should remain a force to be reckoned with.
