No growth for Woolies?

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Woolworths (WOW.AX) has once again made headlines, raising eyebrows of investors and analysts alike after claiming to politicians and industry regulators that it had not increased its market share of 28% in the food and grocery market since 2007.

On the contrary, in its full year report, which was released to the public in August, chief executive Grant O’Brien boasted that it had, in fact, increased market share, which was a “very strong signal” of the successes of the company.

According to The Australian Financial Review, Woolworths utilised data from the Australian Bureau of Statistics and Nielsen’s Home Scan to prove its claim of no growth. Data from the latter however, does not take into account fresh food products, which Woolworths has been much more dominant in than competitors such as IGA or Coles, which are owned by Metcash (MTS.AX) and Wesfarmers (WES.AX).

With the company’s shares jumping to record highs in what is being deemed the “Blue Chip Bubble”, it would be very reasonable for investors to expect an increase in Woolworth’s market share. Analyst David Thomas expects its share would be somewhere between 35-39%.

Since 2007, Woolworths has opened 121 new supermarket stores across Australia. It has also invested in customer loyalty offers and heavily discounted prices – a move that suppliers such as Coca-Cola Amatil (CCL.AX) believe to be anti-competitive behavior, as it puts immense pricing pressures on smaller grocers such as Aldi or Costco around the country.

It is being speculated that it has made such claims to the government and regulators in an attempt to ward off new laws that would likely restrict its growth.

Foolish takeaway

It is clear that Wesfarmers and Woolworths possess the greatest market share in the food and grocery industry within Australia. Should the government and regulators discard Woolworth’s claims and introduce new restrictions to market share gains, Woolworth’s share price could begin to fall from the throne in which it currently sits.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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