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Amazon Australia now sells pantry food, should Woolworths Group Ltd (ASX:WOW) worry?

Credit: Amazon.com

Amazon Australia is now selling pantry food to us. This could mean trouble for Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd’s (ASX: WES) Coles.

Pantry means non-fresh food, for now. This isn’t Amazon Fresh or Whole Foods just yet.

However, Woolworths and Coles now have permanent online low-priced competition. Aldi has already had a large effect on the duopoly with prices and margins being reduced, but it doesn’t have an online presence.

Some of the most well-known food & drink brands are selling through Amazon Australia such as Coca-Cola, Nestle, Kettle, Red Rock Deli, Doritos and Arnott’s.

The range of food is not large at the moment, but there are still many categories including: cereals & breakfast bars, sauces, cooking ingredients, drinks, jams, honey & spreads, oils, vinegars & salad dressings, rice, pasta & grains, snacks & sweets and tinned & jarred food.

There are over 10,000 food items in total being sold.

Woolworths and Coles clearly have the upper hand at this point. The amount of products sold means they have much better economies of scale. But, this Amazon pantry division is only going to get bigger over time which could be a problem.

It would only take stealing 1% of supermarket sales for Amazon to make an impact on our local market operators.

Many of the items are not ones I would personally buy and the prices are not bargains yet. But, for the time-poor or Amazon-lover it could be something to consider.

Foolish takeaway

Woolworths is currently trading at 21x FY19’s estimated earnings. It may be defensive, but I can think of several shares that offer more growth potential and are at better value such as Citadel Group Ltd (ASX: CGL).

The best way to combat Amazon on the share market could be this top ASX tech stock.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Citadel Group Ltd. 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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