At the time of writing, the Woolworths Group Ltd (ASX: WOW) share price is hovering around $30.30, which is around the middle of its 52-week range. If you had bought Woolworths shares in June 2016 for around $20.50, you would have made a tidy profit if you sold at today's price.
But put this into perspective: investors who bought Woolworths in June 2014 for over $37 are still underwater. And anyone who was unfortunate enough to buy in December 2007 at $34… well, there's always the dividends.
So although it looks like Woolworths might appeal to our swing-trading friends out there, we should ask ourselves if blue-chip Woolworths is a buy-and-hold stock.
Woolworths Group is Australia's largest supermarket chain, operating 995 stores around the country. The company also owns discount store chain Big W, Endeavour Drinks (which houses bottle shop chains Dan Murphy's and BWS) and ALH Hotels. ALH Hotels operates over 320 licensed venues (pubs) and incidentally owns over 12,000 poker machines across its hospitality businesses.
The Good
This portfolio of retail businesses makes Woolworths shares a good diversification pick – with significant exposure to the food, drink, general retail and property sectors in one stock. According to a Roy Morgan research report, Woolworths continues to hold the largest market share in the grocery sector, with a 34% market share – just in front of arch-rival Coles Group Ltd (ASX: COL), with 27%. This shows that Woolworths knows what it takes to hold its own in the face of rival competition
The Bad
The grocery sector is already a highly competitive market with Coles, German retailer Aldi and the IGA chain owned by Metcash Limited (ASX: MTS) together with Woolworths forming a virtual oligopoly. Another German chain – Kaufland is set to enter the Australian scene in the coming years, which will undoubtedly add to the cut-throat nature of doing business in this industry. Although it is likely Woolworths can hold up its market share, Kaufland's emergence will likely see a price war as the existing players in the grocery sector act to defend their slice of the pie. This will undoubtedly lead to margins being squeezed for at least a few years.
Foolish takeaway
Woolworths has proved it is a well-run company, with a diversified portfolio of businesses across the food, drink and retail sectors. Saying this, the grocery industry in Australia is facing significant headwinds and I am not convinced that Woolworths shares (at least at current prices) would be able to give investors a better return over the next decade than those who bought Woolworths a decade ago. Although Woolworths is a solid blue-chip company, there may be better places to invest right now.
