Woolworths Insures to Ensure Growth

SYDNEY -- Growth is increasingly hard to come by for the big supermarkets, including Woolworths ASX: WOW.AX), Coles -- owned by Wesfarmers (ASX: WES.AX) -- and Metcash (ASX: MTS.AX). In an effort to drive the top line, all three are expanding into new categories, such as Woolworths' home improvement stores and Metcash's recent expansion into auto accessories retailing. They are also ramping up efforts to generate additional revenue from their store footprints.

Woolies announced on Aug. 6 that it has expanded its insurance offering, launching car and travel insurance in addition to its current pet and life insurance products. The company will also launch home and contents insurance in the coming months.

The news shouldn't come as a surprise, as Coles had already taken the step of adding insurance to its products and services range back in 2010. The company currently offers car and home insurance, which was a logical step, as its parent Wesfarmers has its own insurance arm.

Our local retailers are mirroring the model pioneered by Sainbury's and Tesco in the U.K. market, where supermarket retailers have long offered banking and insurance products as part of their standard range. In fact, Tesco has its own bank brand, which offers products as diverse as insurance, credit cards, and even personal loans and mortgages.

The Woolies offering is being supplied in partnership with Hollard Group, an international insurance provider, and Swiss Re, one of the world's largest insurance companies.

Insurance and banking services lend themselves to being "white-labeled," where noninsurance companies can provide the front-end services to an insurance company's products. It makes sense for supermarkets to offer these products, as they can take advantage of their large number of stores and access to thousands of customers.

The practice of white-labeling is not so different to insurance companies operating under several brands, such as Insurance Australia Group's (ASX: IAG.AX) businesses: NRMA, CGU, SGIO, and Swann Insurance. Other examples include the RSPCA's pet insurance, also backed by Hollard Group.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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