Coles and Woolworths should give up on competing with Aldi on price and return to a 1970s-style richer shopping experience coupled with a 21st century online offering, according to a retail expert.
The two supermarkets are desperately slashing prices and products in an attempt to keep up with the no-frills German retailer, which now has approximately 400 stores and a tenth of the market.
An example of the smaller-target trend is Coles’ announcement in August that it will slash its range by up to 15 per cent in coming years.
But Dr Gary Mortimer, a food retailing researcher at Queensland University of Technology, said the two giants might have better luck adopting an entirely different strategy.
“My view is that full-line supermarkets like Coles and Woolworths, and to a lesser extent IGA, shouldn’t be trying to compete with discounters on their strength, which is price,” Dr Mortimer told The New Daily on Friday.
“Marketing strategy clearly demonstrates that price is probably the most easily replicated strategy. Everyone can claim they have the lowest prices, but unfortunately it becomes a race to the bottom with really only the biggest player winning.
“We must remember that Aldi is the seventh largest food retailer in the world. It’s a global retailer with global buying power, and it’s certainly much larger in terms of total revenue than Coles and Woolies put together.”
Dr Mortimer said the Australian supermarkets should focus instead on range, fresh produce and high-quality service, while also catering to the stay-at-home generation by continuing to invest heavily in home-delivered groceries ordered over the internet.
“If you go back 30 or 40 years to the 1960s and 70s, there was a bit of excitement and theatre in supermarket retailing. You were able to talk to the butcher, who would cut up your meat for you. You were able to see the baker pull the bread out of the oven.
“We walked away from that in the ’80s and ’90s. It became clinical, pristine, hospital-style, filled with fluorescent tube lights. Even the fresh departments of Woolworths and Coles seem to be moving towards a commercial, industrial, spotlights, woodgrain floors, market-style feel. And that’s easily replicated by a discounter.”
Dr Mortimer’s warning echoes the advice of former Aldi executive Paul Foley, who told Fairfax Media last week that Coles and Woolies need to advertise their wider range and their fuller services — such as delicatessens.
As the Big Two contract, there is evidence that Aldi is trying to do the opposite: compete with the big players on service. For example, News Corp reported earlier this month that the German chain would soon expand its offering of fresh produce via a more centralised buying model.
Reports at the time focused on the negatives for Coles and Woolies. But in fact Aldi risks overreaching, which would be good news for the struggling two, according to Dr Mortimer.
“It’s a risky strategy to move into fresh. While fresh provides you with more margins, it’s quite highly perishable. And if you’re well know for low price, no-name, private-label products and you start to try to sell yourself as an alternative in fresh, be that food, bakeries or butcheries, and you can’t meet the expectations, I think you’ll disappoint and turn away customers pretty quickly.”