The hunting giant

The giant is still on the prowl.

Yesterday, supermarket and retail giant Woolworths confirmed it still has an appetite for major acquisitions, with chairman James Strong telling shareholders at the annual general meeting that there were still opportunities around.

“In terms of major acquisitions, the board remains open and alert to a wide range of possibilities that could add value for our shareholders,” he said.

That sounds a little like a motherhood statement, but it is clear that Woolworths needs to find new ways to grow if it wants to maintain the growth rates for which it has become famous. Its supermarket business continues to star, but it’s not going to grow quickly anymore.

That’s why we are seeing Woolworth’s embark on this 150-store hardware joint venture with US giant Lowes – the company needs to find new markets to grow into outside of its traditional areas of food and discount goods.

So what could the giant buy? Unfortunately for smaller retail investors looking for an exit, Woolworths is likely to be looking for more medium to large targets, although the company did snap up a relatively small organic grocery chain (called Macro) a few years ago.

Perhaps one of the most obvious targets is JB Hi-Fi, which has been mentioned as being on Woolworths’ radar in the past. With a $2 billion market capitalisation, JB would not be a small buy, but it’s a purchase that wouldn’t cause too many competition concerns given this is an ultra-competitive area. And it would fit nicely with the company’s Dick Smith brand.

Or could Woolworths look to get into an area of retail it is not really playing in. Recent market speculation has suggested Bras N Things and Adairs, two retail chains owned by Brett Blundy, may soon be on the market. These would be smaller buys for Woolworths, but would allow them to get into new areas.

Or could the supermarket giant go an entirely different way and try to leverage its huge Everyday Rewards loyalty program. While the program has a number of partners already – most notable Qantas – could Woolworths buy a small financial services provider and start selling these services to its database directly?

Let’s see where the giant goes next.


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