Are Coles and Woolworths relatively safe investments?

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Question asked 21/10/2022

Are Coles and Woolworths relatively safe investments?

Hi Guys, Both Coles and Woolworths have corrected significantly since their last high in August. Both have experienced cost increases and higher prices from suppliers; however, arguably, their dominant market position can enable them to pass on to consumers most of the price hikes (remember lettuces selling at $11 ea?). Assuming economic conditions in Australia will deteriorate in the first half of 2023, and supermarkets won't see significant demand reduction, aren't either WOW or COL a relatively safe medium term investment? Thanks

Answer

Hi Angela,

Woolworths (WOW) and Coles (COL) are probably the best examples of “recession-proof businesses” and during tougher economic climates, these stocks are generally more stable.

Due to the resilient nature of their business model and consistent demand for their products, supermarkets can often be deemed as sound investments. However, it is important to note that it is also a competitive space to operate in and the battle of gaining market share is always evident.

We have also seen the recent popularity of online grocery shopping take over. This is an effective way for the business to service more clients efficiently which should help with retention hence to decide where to invest trends in the online space are important to monitor.

In summary, I would say yes but as we’ve seen when the overall market is re-rated lower there are very few places to hide as both WOW & COL have fallen ~20% over the last 6-12 months i.e. safe is relative stance when it comes to investments.

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Woolworths (WOW)

LAST UPDATED 20/10/2022 15:23

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