Woolworths facing fresh threat from Amazon.com

The ASX is facing a big indiscriminate sell-off this morning but the Woolworths Group Ltd (ASX: WOW) share price might have another headache to deal with.

On-line shopping titan Amazon.com, Inc. started selling alcohol online with free delivery for Amazon Prime subscribers, reported Nine News.

The move was to capitalise on strong demand for alcohol during the COVID-19 lockdown with Aussies flocking to online platforms for contactless delivery.

Demerger under a cloud

The launch of alcohol on Amazon poses a fresh challenge to Woolworths on a few fronts. Our supermarket giant is looking to demerge its Endeavour Drinks business, which houses Dan Murphy’s and BWS, among others.

The coronavirus pandemic is complicating the process and news that the world’s largest retailer is muscling in on the lucrative market will cast a further cloud over the demerger.

How prices compare

The drinks sold on Amazon is priced favourably to Dan Murphy’s. According to Nine News, a case of VB beer on Amazon costs $51.90 for 30 cans.

Dan Murphy’s price is a tat cheaper at $51.85 – but Dan Murphy’s charges between $6.90 and $15 for delivery while Amazon’s delivery free with its $6.99 per month Prime subscription.

A case of Jacob’s Creek Double Barrel Chardonnay at Dan Murphy’s is $119.70 plus delivery. Amazon is selling the same for $108 – again with free delivery for Prime members.

Amazon competing with our supermarkets

Woolies shareholders are hanging out for the Endeavour spin-off given that stocks which undertake such a separation tend to outperform the S&P/ASX 200 Index (Index:^AXJO).

But Woolworths is facing more than one battle front with Amazon. Experts believe it’s only a matter of time before Amazon starts selling fresh produce online and in physical stores, just as it’s doing in the US.

It isn’t only Woolworths that is facing the Amazon challenge. Archrival Coles Group Ltd (ASX: COL) is also vulnerable to losing market share to the US retailer, while grocery distributor Metcash Limited (ASX: MTS) is another that will be impacted.

Can ASX supermarket stocks keep outperforming?

These stocks have held up very well through the COVID-19 bear market thanks to their defensive income and the grocery panic buying .

The Metcash share price is up 12.5% since the start of 2020, while the Cole’s share price is ahead by nearly 7% and the Woolworth share price is 2% in the black.

This stands in contract to the 11% loss on the ASX 200.

Shareholders will be hoping they can keep outperforming during these uncertain times even with Amazon nipping at their heels.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. BrenLau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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