Grocers go bargain hunting

Progressive’s supermarkets trade under the Woolworths, Foodtown and Countdown banners. Picture / Kenny Rodger

Australian supermarket giant Woolworths has put its shares on a trading halt, a move read as confirmation that it is set to bid for New Zealand's Foodtown, Woolworths and Countdown chains.

If it buys the chains, analysts say that could result in lower grocery prices in New Zealand. The Australian company is known for its competitive pricing.

The share suspension echoes action taken Monday by Foodland, which owns the New Zealand supermarkets through subsidiary Progressive Enterprises, and Metcash Trading, an Australian grocery wholesaler that has bid up to A$1.1 billion ($1.17 billion) for Foodland.

With strong speculation Woolworths is planning a combined A$3 billion bid for Foodlands with Metcash, the main surprise was that Woolworths did not act sooner.

"It has to be related to the deal," said David Spry, an analyst with Australian brokerage F. W. Holst.

"Presumably it must be quite close - I'm only surprised it is taking this long."

The Woolworths halt lasts until trading begins tomorrow - shares in Foodland and Metcash are due to resume trading today unless the companies seek an extension.

Spry said a successful move into New Zealand by Woolworths should worry the other major New Zealand supermarket operator Foodstuffs, which owns the New World and Pak'n Save brands.

"They have got the ability to lower prices - that's their policy, very low prices. They're going to put a lot of price pressure on Foodstuffs at the lower end."

Woolworths also pioneered discounts on petrol for supermarket customers in Australia. Discounts of about 4c a litre for every A$30 spent on groceries are now the norm.

Spry said the company would probably test petrol discounts in New Zealand, if it perceived an opportunity to drive market share, but its main focus in Australia was to seek the right to sell prescription drugs.

If a Woolworths bid does emerge, it is thought the company will put a $2 billion price tag on the New Zealand assets, plus about 20 Action supermarkets in Australia.

Metcash is expected to pay up to $900 million for Foodland's Australian wholesaling business and about 60 Action supermarkets.

But a joint bid at such prices would be at the lower end of the valuation range determined by a Foodland-appointed independent expert and could see another bidder emerging, analysts said.

Woolworths' rival Coles Myer, which has never indicated its intentions, may bid to stop Woolworths gaining the benefits of scale in improved buying power and cross-Tasman synergies.

"Any competitive advantage can have an impact on the pricing side - you'd think one they [Coles Myer] would not want Woolworths to get," Spry said.

A Woolworths Metcash bid at the high end of the range would be unlikely to leave the door ajar for another bidder.

Up for grabs?

Progressive claims a 45 per cent share of the New Zealand grocery market.

It owns 150 supermarkets trading under the Countdown, Foodtown and Woolworths banners.

The company employs about 20,000 people across New Zealand.

It owns 22 Woolworths Quickstop and Micro convenience stores, meat processing plants, warehouse operations and support offices.

It also co-ordinates the FreshChoice and SuperValue franchises.

The predator?

Woolworths Ltd is listed on the Australian Stock Exchange and is based in Sydney.

It operates more than 1600 stores in Australia, plus 33 Dick Smith Electronics stores in New Zealand.

The company employs more than 145,000 people and has annual sales of $27 billion.

Woolworths' brands include Woolworths, BigW, Safeway, Food For Less, PowerHouse, Tandy, Woolworths Ezy Banking and GreenGrocer, among others.

It has more than 300,000 shareholders - over 90 per cent of whom are "mums and dads" with fewer than 5000 shares.

Its first store was opened in Sydney in 1924.

The company was going to be called Wallworths Bazaar, but one of the founders of the Australian company decided to register the name Woolworths after a dare.