Woolworths: The era of growth and fat margins is over

As the classic disclosure says: ‘Past performance may not be indicative of future results.’ But shareholders of Woolworths (ASX:WOW) could be forgiven for thinking ‘doesn’t apply here’ after 15 years of uninterrupted growth in earnings per share. The good times came to an abrupt end at the last interim result when earnings per share fell 4%. Nonetheless, Woolworths is still one of the most profitable grocery chains in the world – and that’s the problem. Aggressive in-store price increases expanded its gross margin but the loss of price leadership is also pushing customers towards competitors. Woolworths lost market share to Coles in the first half, with same-store sales growth of just 1.7% compared to 4.2% for Coles. Winning customers back won’t be easy now trust on price has been damaged. To compound matters, customers have many more low-price options than five years ago: Aldi now has a 10% market share in eastern states and Costco has signalled its intention to keep rolling out stores. (VIEW LINK)