Whether it’s telecommunications, airlines, banking or almost any industry Australia seems to be one of those economies which attracts oligopolies.
That is, a small number of large companies tend to dominate industries while a large number of smaller players sit underneath these behemoths.
Retail is probably one of the more concentrated with Coles (or should we say Wesfarmers) and Woolies reported to account for around 40% of every retail dollar spent in Australia, according to some estimates.
Everyone understands the basics of shopping at Woolworths or Coles, but have you ever stopped to think about where else your daily retail habits cross over with Wesfarmers or Woolworths, the corporate entities?
Woolworths says it “manages some of Australia’s most recognised & trusted brands” – and it does, but you might be surprised by some of the names on the list.
Take the recent appearance of upmarket grocer Thomas Dux both in physical locations across Sydney and Melbourne, and online.
Thomas Dux looks a lot like other speciality grocers that are popping up around Australia with a wide range of high end produce and an entreaty to “inspire your passion for food.”
Shops in Paddington in Sydney and Richmond in Melbourne don’t resemble anything you would have seen at Coles or Woolies. But it is part of Woolworths stable.
Thomas Dux is only small at present and not the most obvious example of the reach of our big supermarket chains. But Coles and Woolies have become a staple in our daily lives and in so many areas.
This matters because diversification is an important capability for many companies.
The ability to manage growth in new business lines is an important consideration for a company as an investment prospect. It is a test of flexibility, and the ability to adapt to changing consumer tastes.
Big W (Woolies), Target and Kmart (Coles) are well known competitors in the general merchandise retail space, dominating that landscape for affordable clothing, toys, fishing, camping, homewares and so on.
That is mostly well known and understood. But the supermarkets also have a strong presence in the market for retail alcohol.
Liquorland has been a well-known part of the Coles stable of brands for years while BWS is Woolworths offering in the same space. But if it’s high-end you want then you are probably going to head to Vintage Cellars, which is also owned by Coles, or if it’s the big discount store you are looking for then it’s Dan Murphy’s or First Choice Liquour Superstore – they too are owned by Woolworths and Coles respectively.
Of course Woolworths also has Woolworths Liquor but if you’re buying online at Cellarmasters or bidding in an online auction at Langton’s for the bottle of Grange or Hill of Grace then you are also shopping at Woolies.
All up Coles says that its liquor division has 785 stores trading as Liquorland, Vintage Cellars and 1st Choice Liquor Superstores.
Equally the local pub is not so local these days, with Coles paying $328 million in 2006 to purchase the Hedley property group which added 35 hotels and 102 retail liquor outlets to its portfolio, around the same time it bought two other hotel groups in Queensland. It now has 95 hotels around the country.
ALH, part of the Woolworths group operates 294 licensed venues and over 460 retail liquor outlets across Australia including the Kirribilli hotel in Sydney, Young and Jacksons in Melbourne and the Breakfast Creek hotel in Brisbane.
Wherever there is an industry that can benefit from aggregation, economies of scale and is able to pass on savings to consumers, the retail giants could take an interest.
Petrol for example, where Coles has teamed up with Shell and Woolworths with Caltex to improve the retailing aspect of that business and drive loyalty across its branded stores via fuel discounts – which also often come with discounted liquor coupons to push consumers toward their brands.
Likewise Coles saw stationary as ripe for consolidation and in 1994 established its Office Works brand which has now grown to 150 stores and it styles itself as “Australia’s leading retailer and supplier of office products and solutions for home, business and education needs.”
Some people now refer to it as “Bunnings for businessmen”.
Likewise the consolidation in the home improvement and DIY hardware market has been driven by Coles and Woolies, with the growth and industry dominance of Bunnings Warehouse – the Wesfarmers owned hardware retailer – which has close to 300 stores Australia wide.
This information does not take into account your investment objectives, financial situation and particular needs. Before making any investment decision based on this information, you should consider talking to a financial adviser, and assess whether the information is appropriate to your particular investment needs, objectives and financial circumstances.
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