Woolworths’ decision to dump one of its home brand labels has been fuelled by Aldi’s runaway success in the Australian grocery industry, experts say.
On Monday, Woolworths confirmed it would cut its in-house ‘Select’ brand, almost three months after it renamed its other private label, the 33-year-old ‘Homebrand’, to ‘Essentials’.
Expert analysis and research into Woolworths’ performance found that Aldi had been decimating the slow-to-react Australian grocer thanks to its low-cost shopping model.
Woolworths had not been generating enough revenue from its mid-tier private label ‘Select’, an expert said, while at the same time Aldi had convinced Australian shoppers its home brands were of a desirable quality and value.
“Aldi has really changed the way Australian shoppers engage with their shopping. They have legitimised private label products in supermarkets,” Queensland University of Technology retail expert Gary Mortimer told The New Daily.
“Australian shoppers have been conditioned by Aldi to buy private label products. Aldi has created really price-conscious grocery shoppers who look for reasonably good range, reasonably good quality, but for a low price.”
A recent report from investment bank UBS estimated that Woolworths would lose sales valuing $476 million a year over the next three years to Aldi.
It also said that Coles was successfully combatting the loss of customers to Aldi, but Woolies “appears to be losing to Aldi at an accelerating rate”.
Most damningly, however, the report said that Woolies had “lost its way and this has been reflected in it losing share of main shops, shopper frequency and weekly spend”.
The ‘Select’ brand was a mid-tier home brand which sold food and non-food products at 10 per cent less than comparable name brand products.
Woolworths will now focus all its energy on the ‘Essentials’ home brand, which would cover food only at “low prices”.
One year ago Woolworths conceded consumers perceived Aldi home brands to be on par or better than ‘Select’ and better than ‘Homebrand’, Fairfax Media reported.
Wise choice for Woolies
QUT’s Dr Mortimer said Woolworths’ decision was a wise choice because the company wouldn’t be distracted by a fringe brand like ‘Select’.
He said he suspected Coles would also soon cut its mid-tier in-house brand, after it cut its ‘Homebrand’ equivalent in December.
Woolworths told The New Daily the ‘Essentials’ brand’s streamlining would take place over the next couple of years, with most changes coming in the next financial year.
Dr Mortimer said 25 to 30 per cent of space in an average Australian shopping basket per year is taken up by home brand products.
This figure was up since Aldi entered the Australian market in 2001.
Morgan Stanley recently forecast the German-owned chain’s sales would rise by 90 per cent in the next four years, to $15 billion from 2016 to 2020.
Aldi’s rise would only continue to make things cheaper for the average Australian shopper.
“Aldi [coming to Australia] was the catalyst for the supermarket price wars,” Dr Mortimer said.
“We are a long way behind Europe. Germany is at 50 per cent [of products in shopping baskets being home brand].”