Commanding more than half of Australia’s grocery market, you’d think Coles and Woolworths would be those most worried by the imminent arrival of aggressive German supermarket giant Kaufland.
But while the pair has the biggest market stake, they may not be the ones with the most to lose when one of the world’s largest retailers lands on Australian shores.
Senior strategist with Retail Oasis Jessica Sinclair says it’s Kaufland’s compatriot, Aldi – with just 11 per cent of the market – which should be the one looking most nervously over its shoulder.
Ms Sinclair cites three reasons why Aldi will need the best battle plan to combat the Kaufland assault, which has plenty of money and a massive arsenal of products.
“I definitely see that initially Aldi customers are the most ripe for poaching because they are more price-conscious, and they have shown themselves to be more willing to try something new and experience something different,” Ms Sinclair said.
“And I think this German offering of no-frills value would definitely appeal to that Aldi shopper, that value-oriented part of the market.”
Kaufland is a retail leviathan, with a 2018 Deloitte study ranking it the world’s fourth-largest retailer.
Kaufland and sister supermarket Lidl form the Schwarz Gruppe, which employs 400,000 people in 11,700 sites in 30 countries and which in 2017-18 turned over €96.8 billion ($153 billion). It has publicly acknowledged its aim to hit the €100 billion mark ($158 billion) by 2018-2019, and given its 7.4 per cent growth in 2017-18, that goal looks within its reach. (Australia’s entire supermarket sector had revenue of about $103 billion in 2018).
IBISWorld senior industry analyst Tom Youl agrees that Aldi is the most vulnerable to Kaufland in the short term, adding that Costco – which has managed only 2 per cent market share in 10 years of operation – should also be worried.
“That’s because Aldi and Costco have targeted the cost-conscious consumer,” Mr Youl says. “Coles and Woolworths are traditional stores with existing brand value and more rusted-on shoppers. They’re positioned in a market that is slower to change.”
But Mr Youl said Kaufland also presented a big risk for lower-end department stores, such as Big W, Kmart and Target.
“Think about a situation where you’re in the market for a blow-up pool, and you can knock it off while you’re doing your weekly grocery shop at Kaufland without having to make a special trip to Kmart or Big W,” Mr Youl says.
Kaufland’s range strength will make it a formidable entrant to the market, too, Ms Sinclair says.
While Coles and Woolworths typically have about 22,000 lines, or stock-keeping units (SKUs), and Aldi about 1350, Kaufland is expected to have about 30,000 SKUs. (German media report that Kaufland hypermarkets typically carry up to 60,000 SKUs.)
And it isn’t afraid to wage ruthless price wars, particularly against “arch enemy” Aldi in Germany, where supermarkets are locked in a brutal price war.
In a recent survey by German comparison site vergleich.org, Kaufland came out the cheapest for branded products and performed well in house brands too, while sister Lidl was the cheapest for house-brand products.
“Kaufland is the clear winner in our evaluation,” wrote Maria Günter, of vergleich.org. “The supermarket offers not only branded products at the lowest price, but also has very inexpensive house brands in its range.”
Deep determination … deeper pockets
Kaufland’s sheer financial mass will allow it to go the distance, Mr Youl says.
Australia chief executive Julia Kern has spoken of an “initial investment of $459 million”, it has three sites already approved in Victoria and is building a fully automated, 110,000-square-metre warehouse in Melbourne’s outer north.
“Obviously a very strong financial backing would be a prerequisite to enter the Australian market, the same way Aldi did,” Mr Youl says. “And Kaufland looks willing to spend big in that area, with automated warehousing and large store footprints.”
They’re investing heavily in infrastructure.”
The company’s ultimate success will depend on how quickly it can expand stores to other locations, he says. Aldi, for example, already has around 500 stores since opening its first in 2001, and now commands more than 11 per cent of the market.
A Morgan Stanley report predicted Kaufland to open seven and 10 stores in 2019/2020 and about eight a year over the next five years, with a target of about 32 by 2023.
Ms Sinclair says Kaufland’s entry has parallels with Amazon, which took 10 years to be consistently profitable in the US, and is still reporting losses in Australia, but has the patience to ride those out and stay the distance.
The New Daily asked Kaufland Australia a series of questions on April 9, but did not receive a reply by publication.