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Woolworths Group Ltd is beating Coles in the supermarket war

According to Roy Morgan research, Woolworths Group Ltd (ASX: WOW) is winning the supermarket war and claimed 32.2% of the market in 2017.

This was an increase of 0.8 percentage points on 2016 and puts its well ahead of Wesfarmers Ltd (ASX: WES) operated Coles supermarkets which commanded a 28.8% share of the total grocery market last year. Coles increased its market share by just 0.1 percentage points year-on-year.

As you can see below, the other big mover in the group was German budget supermarket chain ALDI. It grew its share by 0.8 percentage points to 12.1%. This brings the combined market share of Woolworths, Coles, and Aldi to 73.1%, up 1.7 percentage points since 2016.

Source: Roy Morgan research

Things weren’t so positive for IGA wholesale distributor Metcash Limited (ASX: MTS). IGA saw its market share fall from 8.5% to 7.4% in 2017 and I suspect the rise of ALDI is responsible for much of this decline.

The bad news for Metcash is that another German supermarket giant is beginning to grow its presence in Australia. Earlier this month Kaufland had been poaching retail executives as it ramps up plans to open a network of super-sized hypermarkets. Because of this, I would suggest investors stay clear of Metcash.

But that doesn’t mean it is all plain sailing for the likes of Coles and Woolworths. One key piece of data in the research that stood out for me was the lack of loyalty from consumers.

Roy Morgan analysts explained that “There is clearly a lack of loyalty when it comes to supermarket shopping with very few customers only shopping at one supermarket. An example of this is that although 72.7% of grocery buyers shop at Woolworths, a much lower 8% shop only at Woolworths. It is a similar situation with Coles shoppers, where 70% shop but only 6.6% shop exclusively. The store overlap in shoppers of the big two is very large with over half of them shopping at both Coles and Woolworths.”

If one of these supermarkets, or even their German rivals, can increase their brand loyalty, I suspect market shares could change very quickly. This could make an investment in the big two a little riskier than you might first expect, in my opinion.

I think investors ought to skip these companies and invest in these growth shares that are delivering strong result after strong result right now.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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