Woolies cops brunt of uncertain times
WOOLWORTHS has suffered its biggest single-day market rout in nine months amid fears Amazon has designs on a far bigger share of the global grocery market.
Shares in the Australian supermarket heavyweight fell 3.5 per cent yesterday after the US online retail titan struck a deal overnight Friday to buy a major grocery chain.
Amazon will pay $US13.7 billion ($18 billion) for Whole Foods Market, a grocery chain with more than 460 stores in the US, Canada and Britain.
The slide in Woolworths’ share price yesterday was the biggest since May last year and wiped $1.2 billion from its market value.
Shares in Coles parent Wesfarmers, which owns a more diverse collection of retailers including Bunnings and Officeworks, fell just 0.2 per cent to $40.61.
It came despite the fact industry analysts played down Amazon’s likely impact on the Australian supermarket sector.
Citi analyst Bryan Raymond said Amazon’s influence in Australia’s grocery industry is likely to be small.
The online retailer was unlikely to follow with a purchase of a major grocery retailer here, Mr Raymond said.
An acquisition of a major supermarket chain such as Woolworths or Coles was doubtful given the cost of any such deal, he said
“Amazon will be disruptive to all retailers when it enters Australia,” Mr Raymond said in a report for investors.
“However, access to product and distribution points will determine its success, particularly in grocery.”
Mr Raymond said Amazon’s penetration into the Australian supermarket sector was likely to be small and its pricing at a level above the big supermarkets as it had previously taken a “premium” approach to grocery selling.
“As a result, we see less risk to Coles and Woolworths from Amazon than discretionary retailers,” he said.
IGA supplier Metcash is also not an expected takeover target, Mr Raymond said.
Amazon’s Whole Foods deal was about securing a retail footprint in the US, a move it was not expected to replicate here, he said.
“Whole Foods provides Amazon with a (primarily leased) 460-retail-store footprint across 42 US states, serving as distribution and pick-up locations,” Mr Raymond said.
“In our view, this acquisition is not about access to product.”
Woolworths shares down 92c at $25.33. closed