Woolworths Group Ltd (ASX: WOW) shares have tumbled in recent months, down around 20% since August 2024, as the chart below shows. At times like this, it's worth asking whether Warren Buffett would be interested in the company to help decide if we should look at the business.
Warren Buffett has led Berkshire Hathaway for decades, making several excellent investment decisions over the years to help the US conglomerate become one of the largest businesses in the world.
I don't personally know Warren Buffett, so I'm not sure how he feels about Woolworths shares, but I think it's worthwhile looking into some of his past comments and actions about lower prices and supermarket businesses.
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He likes a bargain
Warren Buffett has demonstrated his bravery multiple times during past stock market declines. He made a useful analogy about buying beaten-up stocks, with an example of buying food in 2001. Buffett said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
So, with the Woolworths share price down significantly in the past six or so months, investors are able to get a piece of the business for a significantly cheaper price. The company did suffer from the supply chain strike last year, but to me, that seemed like largely a one-off impact on sales and a modest impact on ongoing wage costs.
Woolworths estimated the direct one-off impact on Australian food operating profit (EBIT) was between $50 million and $60 million, and on Australian food sales of $140 million up to 8 December 2024. The EBIT impact related to lost sales, additional transport and supply chain contingency costs, and elevated stock losses.
Warren Buffett has a history of liking supermarket businesses
Buffett has shown that he is willing to invest in supermarket companies in the past. Berkshire Hathaway has been a shareholder of Costco and Tesco, which are two somewhat comparable investments to Woolworths shares.
Commenting a few years ago about Costco, Buffett said in a CNBC interview according to Business Insider:
The packaged-goods brands [are] losing some ground against the retailers. When you're going toe to toe with a Walmart or a Costco or maybe an Amazon pretty soon … you've got the weaker bargaining hand than you did 10 years ago.
Here [Kraft Heinz] are, 100 years plus, tons of advertising, built into people's habits and everything else. And now, Kirkland, a private label brand, comes along and with only 250 or so outlets, does 50% more business than all the Kraft Heinz brands.
While he called the Tesco investment a "big mistake" in 2014, it has since risen more than 50% since the start of 2015.
My verdict on Woolworths shares
Woolworths is a strong business, and the fall in its share price may appeal to Warren Buffett, but I don't think it has the scale of a company like Walmart or the private brand power of Costco to truly attract him.
In my view, there could be a shorter-term recovery play with Woolworths shares, but I don't think it's going to be an incredible investment from here due to its already-large size and relatively slow sales growth.
But, it could provide slow-and-steady growth that may appeal to blue-chip and defensive-focused investors.
