# Alternatives to Coles and Woolies (retail?)



## DionM (20 September 2007)

I'm trying to keep some diversity in my share portfolio.

Have banking, miners, infrastructure, energy sorted.

Retailers ... have got Coles at present and that's all, and going to lose that to Wesfarmers (not sure if I'm happy or not about that).  I'd like to get more retailers ...

However, I don't want a 'specialist' like Harvey Norman or DJs ... I like having a "foodie".  Does that only really leave me Woolworths?


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## Julia (20 September 2007)

DionM said:


> I'm trying to keep some diversity in my share portfolio.
> 
> Have banking, miners, infrastructure, energy sorted.
> 
> ...




What's not to like about Woolworths?


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## Judd (20 September 2007)

Have a look at Metcash (MTS).  Supplier to IGA and other grocery stores.

http://www.metcash.com/

And there is not much wrong with WOW, except that the shares cost a bit and if you are like us and only have $5k or so at any one time, you don't get many of them.


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## doctorj (20 September 2007)

What about Metcash (ASX: MTS)?


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## YELNATS (20 September 2007)

DionM said:


> I'm trying to keep some diversity in my share portfolio.
> 
> Have banking, miners, infrastructure, energy sorted.
> 
> ...





You could try Metcash Ltd (MTS). Has a $3.5 billion market capitalisation and pays a reasonable fully franked dividend.

Business is summarised as:
Quote
Metcash Limited (MTS) is a leading marketing and distribution company operating in the food and other fast moving consumer goods categories. MTS operates via three business units: IGA Distribution (retail), Campbells Cash & Carry (wholesale) and Australian Liquor Marketers (ALM; liquor wholesale).
Unquote.


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## DionM (20 September 2007)

Metcash - never heard of 'em before!  Thanks.  Looks interesting and certainly up my alley.

And yep there's probably nothing wrong with Woolies except that the share price is a bit steep when buying smallish parcels (like me) and the dividend yield is okay but not spectacular.


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## Julia (20 September 2007)

I understand the reservation about WOW's SP being fairly high, but there's no comparison between WOW and MTS when it comes to growth.  Just a quick look at the one year chart of each shows WOW with about a 50% growth and MTS about 14%.

If you'd invested the same amount of capital in each of these two companies, wouldn't you be happier with the result from WOW?
I can't quite see why the number of shares really matters but perhaps I'm missing something.

I don't have anything against Metcash at all, but if I were picking one food company it would be WOW who have demonstrated year after year their capacity to grow their business.


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## DionM (20 September 2007)

Julia said:


> I don't have anything against Metcash at all, but if I were picking one food company it would be WOW who have demonstrated year after year their capacity to grow their business.




This is true.  I guess another motivation for asking is to compare Woolies with others in the same sector as well (and do what you have done, compare Woolies with them).  And I am looking long term - 10+ years - so recent performance I'm not too concerned about.  (Though by that token, I guess I shouldn't baulk at buying Woolies at it's all time high ...)

I might still end up getting a bit of each, just for some diversity within the sector.


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## Kauri (20 September 2007)

DionM said:


> And yep there's probably nothing wrong with Woolies except that the share price is a bit steep when buying smallish parcels (like me) and the dividend yield is okay but not spectacular.



  If you buy two loaves of bread for $5000 a piece it doesn't matter whether you cut one into 4 slices and the other into 44 slices, they are still both worth $5000.... rather than count the slices go for the one with more yeast... 
 Cheers
..........Kauri


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## nioka (20 September 2007)

Julia said:


> I understand the reservation about WOW's SP being fairly high, but there's no comparison between WOW and MTS when it comes to growth.  Just a quick look at the one year chart of each shows WOW with about a 50% growth and MTS about 14%.
> 
> If you'd invested the same amount of capital in each of these two companies, wouldn't you be happier with the result from WOW?
> I can't quite see why the number of shares really matters but perhaps I'm missing something.
> ...




At one stage I was a supplier to woolworths. They have prospered on the back of their suppliers. They operate a cash business with high turnover but they are the slowest payers I ever encountered, sometimes about 80 days behind. I was in a high cost, low margin business so it was not profitable to continue to supply them. This is OK for them when there is a queue of potential suppliers but they have helped send a lot of local suppliers to the wall and now rely heavily on imports. They will not continue to enjoy the benefits of past trading methods. I suggest that they will continue to increase market share but with decreasing profitability. When I stopped supplying them I lost 30% of my business but increased my overall profit.
I also supplied Coles at the time and they were good to deal with. This was the reason Coles did not match Woolies. That is in the past. The future, I think, looks like Coles has room to improve, Woolies could have peaked.


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## DionM (20 September 2007)

Kauri said:


> If you buy two loaves of bread for $5000 a piece it doesn't matter whether you cut one into 4 slices and the other into 44 slices, they are still both worth $5000.... rather than count the slices go for the one with more yeast...
> Cheers
> ..........Kauri




I know I know.  Just a mental thing that's all.

Now, where's those < 1c shares


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## Dukey (20 September 2007)

nioka said:


> At one stage I was a supplier to woolworths. They have prospered on the back of their suppliers. They operate a cash business with high turnover but they are the slowest payers I ever encountered, sometimes about 80 days behind. I was in a high cost, low margin business so it was not profitable to continue to supply them. This is OK for them when there is a queue of potential suppliers but they have helped send a lot of local suppliers to the wall and now rely heavily on imports. They will not continue to enjoy the benefits of past trading methods. I suggest that they will continue to increase market share but with decreasing profitability. When I stopped supplying them I lost 30% of my business but increased my overall profit.
> I also supplied Coles at the time and they were good to deal with. This was the reason Coles did not match Woolies. That is in the past. The future, I think, looks like Coles has room to improve, Woolies could have peaked.




Interesting nioka...
can I ask how long ago was that?  and what line of goods were you supplying?

I sound like a woolies manager now don't I  - but I'm not - just interested.

It sucks how big business can get away with breaking the rules that the little guys have to abide by.


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## nioka (20 September 2007)

Dukey said:


> Interesting nioka...
> can I ask how long ago was that?  and what line of goods were you supplying?
> 
> I sound like a woolies manager now don't I  - but I'm not - just interested.
> ...



 It was a little while ago, over 15 years but I have kept in touch with other suppliers and they say things are no better now. I was running refrigerated trucks handling a range of chilled products from cheese to smallgoods. By the way they didn't break the rules. THEY MADE THE RULES.


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## chops_a_must (20 September 2007)

Julia said:


> What's not to like about Woolworths?




Umm. They are pure evil?


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## YELNATS (20 September 2007)

nioka said:


> It was a little while ago, over 15 years but I have kept in touch with other suppliers and they say things are no better now. I was running refrigerated trucks handling a range of chilled products from cheese to smallgoods. By the way they didn't break the rules. THEY MADE THE RULES.




Back in the 1980's I had 5 years experience working in logistics/physical distribution management with a major Australian and worldwide food products manufacturer. 

Then, and I believe it would still be the case, the Australian food distribution/sales industry was dominated and controlled by the major retailers such as Woolworths and Coles.

ie. between them, with near monopoly power in retail, ie. these two major players call the shots and control the rest of the supply chain, ie. the wholesalers and manufacturers, so as to serve their own needs.


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## Julia (20 September 2007)

I have assumed that Dion was asking the question with the aim of making money.  My answer re WOW was in direct response to that.

The philosophical / ethical question of how the company makes that money is another question altogether .  I suppose Woolworths would say that their responsibility is to deliver to their shareholders.

Chops, to say Woolworths are "pure evil" is a fairly exaggerated comment, isn't it?  How do you support such a statement?


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## vishalt (20 September 2007)

Pure good for their shareholders, Dad's pretty happy with the basket of $19 shares that he sold at $30 in the express checkout lane. 

Who cares if Woolworths dominates the supply chain anyway? There's losers and winners in each games, Woolworths is an awesome supermarket, I don't understand peoples issues with the prices, they're not even high, if you think its expensive you probably have no job or a very poor income or something... 

It has all the goods one could want from a supermarket, the bakery section is excellent, they're always changing their delis around, there's always many of the express lanes open in peak hour (unlike Coles...) its beautiful, why all this whining?


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## chops_a_must (20 September 2007)

Julia said:


> I have assumed that Dion was asking the question with the aim of making money.  My answer re WOW was in direct response to that.
> 
> The philosophical / ethical question of how the company makes that money is another question altogether .  I suppose Woolworths would say that their responsibility is to deliver to their shareholders.
> 
> Chops, to say Woolworths are "pure evil" is a fairly exaggerated comment, isn't it?  How do you support such a statement?




Their attempted cultural destruction here in Perth has not been welcome...


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## nioka (20 September 2007)

vishalt said:


> Pure good for their shareholders, Dad's pretty happy with the basket of $19 shares that he sold at $30 in the express checkout lane.
> 
> Who cares if Woolworths dominates the supply chain anyway? There's losers and winners in each games, Woolworths is an awesome supermarket, I don't understand peoples issues with the prices, they're not even high, if you think its expensive you probably have no job or a very poor income or something...
> 
> It has all the goods one could want from a supermarket, the bakery section is excellent, they're always changing their delis around, there's always many of the express lanes open in peak hour (unlike Coles...) its beautiful, why all this whining?




Woolies can not continue to operate in the future as they have done in the past. If their suppliers can not prosper they stop supplying. I believe they have peaked or are close to peaking. When the small businesses that pay the high rents in the shopping centres (and subsidise woolies) decide they have had enough what happens then. Woolworths pricing is based on selling at as high a price as possible but to discount in order to force out opposition. Once the opposition folds then they increase their prices. eg. To get a good price on fruit and veg at Woolies you shop at a Woolies that has a good independant fruit and veg shop nearby. Woolies prices are low then to get rid of the opposition. Their petrol price with their discount is no longer the best price in our area. They have edged it up faster than most others. They kept it low for long enough to force some opposition out. 
I care that they dominate the supply chain. It will eventually lead to higher prices and less aussie products. Read the labels on their goods to see that it is happening in a big way now.


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## Whiskers (20 September 2007)

vishalt said:


> Who cares if Woolworths dominates the supply chain anyway?




Farmers care... and many rural communities that rely on agricultural production care, as well as many people and small business operators in the suburbs. 

Woolworths encouraged growers to send produce to them at a better price than the central market system in all the state capitals. Once they alienated growers from their traditional marketing agents, they started lowering the price they were prepared to pay. Those growers were often not accepted back by the central market agents, so they got their price screwed down to marginal profitibality levels.

In the suburbs Woolworths opens new stores and undercut independant fruit and veg retailers prices, and keeps undercutting them until they go out of business, then their prices go up because there is no competition. 

You might have heard on news bulletins recently where they were giving growers (from memory) 60c for avocados and selling them for just under $2.

Pumpkins were another bad case a couple of years ago. Woolworths would only pay growers $200/tn ie 20c /kg and sold them for just under $1. In that case growers totally revolted against growing pumpkins and the price went between $1,500 to $3,000 /tn wholesale for months. That did no one any good.

Then we could go on with their petrol pricing policy etc.

I still shop at woolworths and their petrol stations, but like many I know in rural areas  I only buy their specials and always use the dicsount docket for fuel : Thats our way of getting even.

I get the balance of my shopping from IGA or even Aldi to ensure that Woolworths gets some competition and limit their ability to artifically inflate prices. They may not have as many lines as Woolworths, but they can match and are often cheaper with what they do carry.


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## It's Snake Pliskin (21 September 2007)

nioka said:


> At one stage I was a supplier to woolworths. They have prospered on the back of their suppliers. They operate a cash business with high turnover but they are the slowest payers I ever encountered, sometimes about 80 days behind. I was in a high cost, low margin business so it was not profitable to continue to supply them. This is OK for them when there is a queue of potential suppliers but they have helped send a lot of local suppliers to the wall and now rely heavily on imports. They will not continue to enjoy the benefits of past trading methods. I suggest that they will continue to increase market share but with decreasing profitability. When I stopped supplying them I lost 30% of my business but increased my overall profit.
> I also supplied Coles at the time and they were good to deal with. This was the reason Coles did not match Woolies. That is in the past. The future, I think, looks like Coles has room to improve, Woolies could have peaked.





An ethical investment? 

Chops care to elaborate on what has been happening in Perth?


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## It's Snake Pliskin (21 September 2007)

Julia said:


> The philosophical / ethical question of how the company makes that money is another question altogether .  I suppose Woolworths would say that their responsibility is to deliver to their shareholders.




Hi Julia,

It should be to deliver a service to the community in an ethical manner with the intent of making a profit. (not to say that isn't happening)

Cheers


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## chops_a_must (21 September 2007)

It's Snake Pliskin said:


> As an ethical investment it seems they would not meet my criteria. I like to shop at coles anyway.
> 
> Chops care to elaborate on what has been happening in Perth?




Taking out live music venues to put those mega mart type bottle o's in. Nearly single handedly destroyed the Jazz society here as they were going to knock down their headquarters and the only place they play here.

Was really only intervention from the Culture and Arts minister that stopped it from happening in this case...

But yes, likewise, they are a big no no for me as an ethical investor.


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## It's Snake Pliskin (21 September 2007)

chops_a_must said:


> Taking out live music venues to put those mega mart type bottle o's in. Nearly single handedly destroyed the Jazz society here as they were going to knock down their headquarters and the only place they play here.
> 
> Was really only intervention from the Culture and Arts minister that stopped it from happening in this case...
> But yes, likewise, they are a big no no for me as an ethical investor.





Jazz or alcohol? Give me Jazz.

Federal or state minister?


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## chops_a_must (21 September 2007)

It's Snake Pliskin said:


> Jazz or alcohol? Give me Jazz.
> 
> Federal or state minister?




The state.

There has been quite a groundswell of public opinion against the closing down and loss of local pubs here on shows such as stateline. But it's in WA's economic interest to keep pubs and live music, we need ways to attract and keep young people here, and not giving them anything to do, or anywhere to go is perhaps one of the worst things you can do.


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## Julia (21 September 2007)

It's Snake Pliskin said:


> Hi Julia,
> 
> It should be to deliver a service to the community in an ethical manner with the intent of making a profit. (not to say that isn't happening)
> 
> Cheers




I do take the point made by others about Woolworths (and I've heard the same said from people who have supplied Coles) making massive mark-ups on what they pay growers, and no, I don't like that.

But to be honest, and I imagine I'm typical of a lot of people, when I go to do the shopping, I know that if I go to Woolworths I will find well stocked shelves with excellent variety, high quality produce, and best of all, they understand the meaning of customer service.  Nothing is a problem.  If you don't like the mushrooms they have on display they will bring out another box.

So, Snake, I'd say they are providing a service to the community judging by the packed stores in contrast to the empty aisles at Coles.  Voting with feet and all that.

To return to Dion's original question which I'm still assuming was asked from the point of view of making money, I'm not exactly unhappy with the 148% gain on my WOW shares, plus some dividends and franking credits.
After all, as we baby boomers are constantly being reminded these days,
I dare not risk falling into the dire position of costing the younger generations any welfare dollars so need to ensure my financial survival!


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## It's Snake Pliskin (21 September 2007)

> So, Snake, I'd say they are providing a service to the community judging by the packed stores in contrast to the empty aisles at Coles.  Voting with feet and all that.






> (not to say that isn't happening)



From my previous post just to clarify.


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## It's Snake Pliskin (21 September 2007)

An article in the Telegraph today regarding coles:
http://www.news.com.au/dailytelegraph/story/0,22049,22455460-5001024,00.html


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## DionM (21 September 2007)

Wow  this generated a bit of discussion.

My original intention I guess was wondering what other companies there are that operate in the same arena as Coles and Woolies, so I can build some diversity in my portfolio.  I was - up until a year ago or so - mostly happy with my Coles shares.  

But with all the takeover talk and bad news (esp the above quoted article, which was the driver for my post, I read something similar elsewhere yesterday) I want to look elsewhere in the sector.

Woolies is a good performer based on past history.  But I don't know enough whether to know if I'm buying at the start of sideways movement (excluding the dip in August, it looked like the SP was starting to level off, but I'm not a great TA just yet).  

And while I'm a long term investor, the dividend return is not spectacular (then again, not many in the industry are, it seems) either.  I also only have the ability to buy a small parcel, so small gains in SP do not give me a big gain in value of shares) - hence my sensitivity (in part) to the cost of the shares and how many I get for my money.  

So again, I wondered are there options to Woolies - hence my post.

With the ethical side of investing, I'm not sure about that either.  I have some investments I've made (mostly in energy) that are guided by my concern for the world's health (climate change), but I don't know how passionate I am about big business vs small business and the like, as noted in the thread.


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