An economic moat arises around a company because its products and services have features that protect them from competitors. Consider Wal-Mart Stores. It has built a name for reliable products at low prices. People are willing to travel to buy at a Wal-Mart. Once a store is built in an area, then it is unlikely that a competitor will build anywhere within a wide radius.
The same applies to Westfield Holdings in Australia and the USA. Once they have built a shopping mall in a region, it is very hard for someone else to build another mall nearby.
Or Rural Press. They publish over 150 regional newspapers and magazines in Australia. Most rural towns only have one newspaper. It is also usually well established so it is unlikely that another company will start a rival paper. This sounds like a great situation-the only paper in town and likely to stay that way. A print monopoly. On the down side, the newspaper has to compete with local radio and regional television for their advertising dollars.
These are geographical barriers. Other barriers can come from the strength of the name. Consider Coca Cola, Intel, Microsoft. All world leaders with very strong brand names.
It was a brilliant marketing strategy by Intel to promote their computer chips direct to the users rather than to computer manufacturers. Even though at various times AMD chips have been faster and cheaper, the majority of people choose personal computers with the logo "Intel Inside".
Australia does not have such strong international brand names. Yet, in certain areas there are very strong local names. Consider, for example, Gowings Brothers Limited. For many decades the name Gowings was synonymous with quality products at minimum prices. Recently they have tried to build on this brand recognition to open new stores with different images and different stock. Will the brand transfer to these new stores? John Gowing, the managing director of Gowings wrote that in a recent annual report that "the requirements of operating in three different locations has proved to be a considerable challenge."
Other companies with strong brand awareness are Qantas, R.M. Williams, Blackmores and AMP Limited. For example, Qantas was identified as the "most admired company" in Australia in an independent study of consumer attitudes towards major corporations. R.M. Williams has a strategy of building on its name by opening retail stores in Australia and the UK. It is also starting a magazine.
Used properly, this type of information can make all the difference when trying to pick stocks that will outperform the market.
