Is this the biggest threat to your Wesfarmers Ltd and Woolworths Limited shares?


Investors undertaking analysis of a company or industry will regularly look to other countries to gage the relative profitability of a domestic operation.

Right now investors in two of Australia’s leading retailers, Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW), could be well advised to take a look at the significant structural changes occurring in the US grocery market.

According to a report by Australian Food News, Wal-Mart has recently entered the fray to take on Amazon and Google in the online grocery shopping segment.

The move towards online shopping and home delivery of fast-moving consumer goods, fresh and perishable produce is a major threat to established bricks-and-mortar players.

While in the past, investors have speculated on whether Amazon has plans to set-up shop in Australia, ultimately it doesn’t matter whether Amazon does or not – someone will!

At some point, most likely in the not-too-distant future, a cashed-up online-only competitor will attempt to take market share from Coles and Woolworths, just as Aldi has done with its bricks-and-mortar offering.

With Woolworths’ share price at just $22 many investors are sniffing around to determine if there is value at these levels. While many investors will consider what the ultimate effect of Aldi’s store roll-out will be on margins for both Woolworths and Coles, it could be that a new online-only competitor might be an even bigger threat to the future profitability of Australia’s supermarket incumbents.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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