UBS: Woolworths is sinking further behind Coles

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Woolworths has lost its way, driven partly by increased competition from Aldi and Coles and partly from a focus on profit over customer, says UBS.

And now suppliers think Woolworths has hit rock bottom. According to the latest UBS Supermarket Supplier Survey, Coles is well ahead.

Woolworths scored just 5.7 out of 10, the lowest since the UBS survey began in December 2007.

When it comes to offering value for money, in-store execution and effectiveness of promotional campaigns, Woolworths doesn’t rate on this scale.

Coles, on the other hand, is rated the highest it’s ever been with a 7.1 out of 10. It leads Woolworths across 25 of 26 subcategories.

The two big supermarkets are under increasing pressure from new players such as the German group Aldi, which now has 10% of the east coast Australia market and growing.

Woolworth sales have been flatlining so badly that its CEO resigned last week, citing disappointing and below expectations results.

This chart shows the widening gap between the two:

“We believe the results from the 18th UBS Supplier Survey clearly highlight Woolworths is a business that (for now) has lost its competitive advantage to Coles,” UBS says in a note to clients.

UBS says Woolworths is a business under pressure.

“And when the number one player in the market is under pressure, major changes to its strategy can cause major disruptions to the market,” UBS says.

“We think Woolworths needs to lift internal morale and take market leadership in terms of both value and service, which takes time and costs money.”

UBS believes the risk of a price war is growing. It has kept its SELL rating on Woolworths. Wesfarmers, which owns Coles, is on a neutral rating still.

“But we believe the risks are increasing,” UBS says.

According to the suppliers, the biggest issues for Woolworths compared to Coles are morale, pricing, and promotional strategy:

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