German discounter Aldi will take advantage of turmoil at Woolworths and the collapsing market share of independent supermarkets supplied by wholesaler Metcash to ramp up its $750 million expansion plans in South Australia and Western Australia, opening up to 20 stores in each state by next year.
Aldi has confirmed to The Australian the supermarket chain, which already has an 11 per cent slice of the food and grocery market on the east coast, will open its first 20 stores in SA early next year. The initial 20 Aldi stores planned for WA are now expected to be open for business between June and December 2016.
Food and grocery suppliers have recently been contacted by Aldi to inform them the chain’s $70m distribution centre in Regency Park, Adelaide will be ready to receive goods from February 1, with supplier contracts for merchandise deals to be issued shortly.
The move promises to open a fresh front in the supermarket wars, giving shoppers in SA and WA their first taste of the German discounter’s steeply discounted groceries and general merchandise. These include homeware, snow and ski gear, and its cheap range of private label packaged groceries, which have made it a great success in Australia. Since arriving here in 2001, Aldi has opened as many as 28 stores a year up and down the east coast.
It now has 350 stores, drawing in about $5.3 billion a year in sales. Its gains have hurt leading chains Woolworths and Coles, as well as independent supermarkets.
UBS has forecast Aldi could snatch between $250m and $350m of annual sales from Woolworths, Coles and Metcash over the next five years.
Privately owned Aldi announced two years ago it would invest up to $2bn in the Australian market to take the fight to Woolworths and Coles.
Woolworths is struggling to convince shoppers of its price competitiveness as it begins a search for a new chief executive following last week’s shock news that Grant O’Brien will be stepping aside in November.
With Aldi now pushing west, the biggest victims are expected to be the thousands of independent supermarkets that traditionally had strong bases in SA and WA but weaker market positions in Victoria, NSW and Queensland.
Metcash has already been forced to write off more than $600m against the value of its flagship food and grocery division, and is overweight with wholesale customers in SA and WA.
Ian Morrice, the chief executive of Metcash, saidthe independent supermarkets in those states had invested a lot in getting battle-ready for Aldi’s eventual arrival.
He said the SA and WA supermarkets supplied by Metcash were in a stronger position than retailers on the east coast, which had been engaged in a bruising tussle for customers since 2001.
“I think the first thing to say is that in both those states we have got some of our finest retailers in the country, and in SA we have some outstanding IGA and Foodland retailers, which is a very different proposition to what we have in the other states of Australia,” Mr Morrice said.
“So I think they are ready, able and willing to put up a big fight for the position they hold in the market. It’s not quite as commanding a position in WA, but nevertheless (they are) some of the best IGA operators in the country. And I think they have been gearing themselves up and getting equipped for new competition.”
A recent supermarket report by Citi claims that big discounters like Aldi usually see their market share peak at 20 per cent.
It forecasts a decline in margins for Woolworths and Coles as the major chains lower prices in response to the threat from Aldi.
Extracted in full from The Australian.