Watch out Woolies: Aldi’s rapid growth could open the door for others; Aldi has almost doubled its share of the $82 billion Australian grocery market and now accounts for more than 10 per cent of grocery sales

Watch out Woolies: Aldi’s rapid growth could open the door for others

February 12, 2014 – 4:54PM

Sue Mitchell

The rapid growth of German-owned supermarket Aldi in Australia could open the door for more foreign grocery chains, analysts say.

Aldi has almost doubled its share of the $82 billion grocery market and now accounts for more than 10 per cent of grocery sales, knocking Metcash’s IGA supermarket network out of third place.

Aldi’s market share still trails that of market leaders Woolworths and Coles Supermarkets Australia, which together account for 72.5 per cent of supermarket grocery sales, according to Roy Morgan Research.

However, the German-owned retailer, which entered the Australian market in 2000 with modest plans for about 100 supermarkets, is catching up fast. Aldi now has about 340 stores on the eastern seaboard and is expanding west, opening as many as 115 stores in South Australia and Western Australia.

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Aldi’s market share rose to 10.3 per cent in the December quarter, from 10 per cent a year earlier and 5 per cent in 2007, according to Roy Morgan Single Source, which analyses consumer spending habits.

In contrast, IGA’s national market share has fallen from 11 per cent in 2010 to 9.3 per cent in the December quarter.

“Aldi’s long-term gains in terms of market share indicate that the European supermarket chain is on the up and up,” said Roy Morgan account manager Warren Reid.

The chain’s customer base has risen four-fold in eight years, from an average 1 million customers a month to 4.2 million a month – half that of Coles (8.8 million) and Woolworths (9.5 million).

Coles’s market share has risen to 33.5 per cent, the highest since March 2008, while Roy Morgan says Woolworths’s share has slipped from a peak of 42 per cent in the March quarter 2011 to 39 per cent.

“Despite Woolworths posting above-average sales in their latest quarter, this hasn’t had any noticeable impact on their market share, as Coles continues to close the gap, and Aldi continues to grow,” Mr Reid said.

“Despite the long-standing dominance of Coles and Woolworths, Aldi have shown that it’s not a two-horse race,” he said.

“More importantly, Aldi’s popularity also suggests that there are opportunities for other international supermarket giants to successfully enter the Australian grocery market,” Mr Reid said.

British grocery retailers Tesco and Asda Stores have sent regular scouting parties to Australia, but have yet to make a move.

Aldi’s rapid expansion has raised the ire of Woolworths and Coles, who believe the Australian Competition and Consumer Commission should scrutinise its new stores in the same way it analyses the impact of their supermarkets.

Woolworths and Coles have also called on Aldi to sign the voluntary grocery code of conduct agreed with the Australian Food and Grocery Council late last year.

Aldi managing director Tom Daunt said he agreed in principle with the code but was reluctant to sign until he was confident it would not increase industry costs and push up prices for consumers.

Mr Daunt also said several provisions of the code did not apply to Aldi’s business model.

Aldi’s’s grocery range is about 95 per cent private label and it offers everyday low prices rather than weekly specials.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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