The share price of Woolworths Limited (ASX: WOW) is tracking lower again today, which may have some investors thinking surely this too-big-to-fail groceries and retail giant must be due a turnaround soon.
Indeed, over in the UK many investors (including Warren Buffett) assumed the dominant supermarket operator of Tesco Plc was simply too big to fail for a sustained period.
How wrong they were – with Tesco stock down 61% over the last five years after structural shifts in the supermarket industry, changing consumer preferences, and the rise of low-cost foreign rivals combined to prevent the group being able to execute a decisive turnaround.
Chart: The five-year share price performance of (former) UK supermarket giant Tesco Plc (Source: Google Finance)
Like Woolworths, Tesco's started to experience multiple profit downgrades as its various spin-off operations sucked up cash, while its supermarket business continued to experience same-store sales slides on a yearly basis.
To try and reverse the decline Tesco's spent big on a strategy to invest in lower prices to win back customers, although it proved too little, too late, as consumers continued to drift away.
Notably the investing in price cutting strategy is the same strategy Woolworths is now gambling on to reverse its own same-store sales decline.
Evidence from the UK suggests investors should not hold their breath for evidence of a turnaround, as declining market share is often hard to reverse once the rot sets in.
Woolworths also has multiple other problems including its loss making Masters Home improvement business and the major struggles of its discount retailer Big W.
The group also has no permanent chief executive and new chairman Gordon Cairns has just appointed ex-CEO, Roger Corbett, as a strategic advisor. This is a move that smacks of desperation, or at least an admission that the group is lacking leadership, or a belief in new strategies.
Woolworths' share price looks like it may have many years of pain ahead then, as competitive pressures increase and price cuts prove unlikely to be a silver bullet in reversing changing consumer preferences.
Any investors looking to profit from the demand for groceries would be far better off considering the same-store sales growth of Wesfarmers Ltd (ASX: WES) in my opinion.
