Australia at war: Coles vs Woolworths vs Costco

[yellowdingo]

With Costco slowly making inroads into the Australian marketplace, the war for Aussie shoppers is heating up. Costco seems to be experiencing a slowdown with this last years profits perhaps because people are loath to apply for membership just to get discount goods.

What happens when one of these companies abandons capitalism for an economy? Whats an economy? Its where Woolworths sticks half its annual profits in a bank account and operates at a reasonable dividend off the interest providing all local produce for free. This means buyers will lock Costco out of profits on local goods. It also means people will buy more foreign produce than they do now. Because Costco can only profit from foreign goods they will be economically vulnerable to Woolworths setting up in the USA making US produce available freely. Conceivably Costco has the hundreds of billions in profits in the US it can bank and wage such a war on Woolworths but it will undermine shopkeepers capacity to sell goods against a free provider.

Would you eat free food knowing it will devastate the local market economy?

[Orfamay Quest]

What happens? The management of Woolworths gets sued by a shareholder for failing to fulfill their fiduciary duty and the board of directors is ordered by the court to reverse this plan. The entire board of directors is replaced at an extraordinary general meeting of the stockholders, and upper management is fired for incompetence, forfeiting their pensions and bonuses.

[Craig Bonham 141]

Will people go for price over self-interest? Of course they will. Wal Mart thrives on this human weakness.

[The 8th Dwarf]

You are leaving out Aldi..YD

[yellowdingo]

Orfamay Quest wrote:

What happens? The management of Woolworths gets sued by a shareholder for failing to fulfill their fiduciary duty and the board of directors is ordered by the court to reverse this plan. The entire board of directors is replaced at an extraordinary general meeting of the stockholders, and upper management is fired for incompetence, forfeiting their pensions and bonuses.

Not necessarily. Making Aussie produce free locks out the competition. It means Costco cant profit from local produce. It also means market dominance. Coles or Woolworths made fourty billion last year in profits. Half their annual profits in an account at two point five percent interest that is half a billion dollars. That would attack Costcos income source. Free food to US homes. They could have a bag of rice delivered to one hundred million US homes by mail on a weekly basis in the first year for that. Sticking half their annual profits in that account means they could home deliver a bag of rice and a box of fresh vegetables weekly to every US home for free at the end of ten years. It would cost Costco increasing amounts of its profits.

[Orfamay Quest]

yellowdingo wrote:

Orfamay Quest wrote:

What happens? The management of Woolworths gets sued by a shareholder for failing to fulfill their fiduciary duty and the board of directors is ordered by the court to reverse this plan. The entire board of directors is replaced at an extraordinary general meeting of the stockholders, and upper management is fired for incompetence, forfeiting their pensions and bonuses.

Not necessarily. Making Aussie produce free locks out the competition. It means Costco cant profit from local produce. It also means market dominance. Coles or Woolworths made fourty billion last year in profits. Half their annual profits in an account at two point five percent interest that is half a billion dollars. That would attack Costcos income source. Free food to US homes. They could have a bag of rice delivered to one hundred million US homes by mail on a weekly basis in the first year for that. Sticking half their annual profits in that account means they could home deliver a bag of rice and a box of fresh vegetables weekly to every US home for free at the end of ten years. It would cost Costco increasing amounts of its profits.

Not relevant. Could Woolworths make more money otherwise? Woolworths isn't in business to "cost Costco," but in business to make money for the shareholders. This asinine scheme would cut into profits, therefore violate management's duty, and is therefore actionable.

Game set match. The judge wouldn't even bother to go to his chambers before rendering a verdict.

[Drock11]

Orfamay Quest wrote:

Not relevant. Could Woolworths make more money otherwise? Woolworths isn't in business to "cost Costco," but in business to make money for the shareholders. This asinine scheme would cut into profits, therefore violate management's duty, and is therefore actionable.

Game set match. The judge wouldn't even bother to go to his chambers before rendering a verdict.

It think it would be extremely less clear cut. There is always the possibility that shareholders revolt if they are unhappy, but getting in legal trouble seems even less likely.

Otherwise every company that uses any kind long term strategy to increase it's profits or give itself a tactical advantage over a competitor while sacrificing a short term gain or profits to do so could be sued. That seems pretty silly.

Lets assume just for the sake of argument that the people that run the company are wrong and their strategy is flawed and won't work out. Still, even then, for there to be a reasonable chance of a lawsuit winning it would have to be proven that the people that run the company are psychic and already knew that and went ahead with their plan anyhow or that they are somehow are purposely tanking the company. In my opinion an honest difference of opinion about length an investment or return strategy is going take and the the return on profits when it does probably isn't going to cut it as far as being sued goes. Even proving intentional wrongdoing would be difficult, and outside of extraordinary circumstances where it's obvious I think proving gross negligence to be very difficult also.

In business, a business is always in it to cost their competitors. Costing a competitor and making money for oneself are often mutually agreeable aspects that help each other.