What Will Second Place Look Like?

With all the media coverage of the battle to acquire the Coles Group, a great deal of the attention has been taken away from the head to head punch-up between Woolworths supermarkets and Coles supermarkets. This titanic struggle had been the main event in Australian retail until the dismemberment of Coles-Myer began in earnest.

That battle however, is all but done and dusted with Woolworths winning by a knockout.

This may, to some, seem like a premature call. But Woolworths is now flogging it’s major rival in sales growth, profit growth, cost of doing business and market share. If you factor into the equation that – despite who ends up owning them – the Coles Supermarket business will be undergoing a new management direction and cultural upheaval for the next two years there is little chance that momentum can (by any means) be made to swing in their favour.

In fact I’ll make a bold prediction. Woolworths will become the Tesco of Australia. They will now begin to accelerate their lead in supermarket market share to the point that no-one will be able to capture them as the market leader. Like Tesco in the UK and Wal-Mart in the USA, once a profit through volume leader has created clear market advantage and pushed the accelerator to the floor, they street the opposition by an unassailable margin. The only thing that can stop their dominance is themselves and government intervention.

I believe in the next five years Woolworths will become so dominant it will require Coles (and their other rivals) to completely re-think their business strategy and positioning. They will be forced to move away from head-on price competition and into mass-niche positioning. They will need to create innovation and differentiation that customers will pay for.

There is no doubt that the critical determinant of supermarket foot-traffic is location, but as Woolworths continues to blanket the country with red and green marquees, other chains will be looking at store productivity driven by local nuancing and customer segmentation.

Forced by market circumstance rather than pure intention, Australia’s supermarket landscape could be about to enter a golden age for consumers and suppliers. Rather than having the dullness of two similar operators dominating a middle ground, we’ll end up with one dominant player and a range of other operators looking at different ways to drive profit rather than top-line dominance.

Under this scenario, we’ll see a great deal of competitive variance emerge. Organics will grow. Gourmet will grow. Local delis will grow. Pre-prepared food concepts will grow. New concepts will flourish. Smart producers will be able to develop new products and find the channels to support them to market. Consumers will win. Producers will win. Shareholders will win.

It’s a time when, rather than being described as “first loser”, second place could actually be a great place to be.