Can this supermarket really replace Aldi? 125



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Aldi has being going from strength to strength but could this competitor knock them down? There’s been an ongoing supermarket war for years now since Aldi stepped in to the market, however there is one grocery chain that wants to take them on directly…

So who is it? Woolworths of course. Is the ‘Aldi-fication’ of Woolworths destroying its value?

By John Rice, University of New England and Nigel Martin, Australian National University

Woolworths shareholders have had a torrid couple of years. The company’s market capitalisation is down around a third since mid-2014 – quite a hit for a company once worth almost A$50 billion dollars. Today it forecast a 35% fall in half-year profit, sending its shares plunging by more than 9%.

The disastrous Masters foray is partly to blame. Conceived in oligopolitical hubris, Masters has been an unmitigated disaster for Woolworths shareholders. They were right to expect far better from the company’s exceedingly well-remunerated board and senior executives. The fact that Masters has ended quite a few careers is cold comfort for shareholders who have lost hard earned savings and superannuation.

Today’s results open a new chapter of woe. Once, Masters was seen as an unfortunate sideshow, able to be separated from the Goliathan strength of Woolies’ grocery cash machine. Today, the illusory nature of that misapprehension has emerged – with sales in decline year-on-year for like stores, and a flagged collapse of earnings by up to a third and, most tellingly, no end in sight.

While the problems of the last 18 months at Woolworths have often been ascribed to the Masters debacle, analysts have long been worried about the main game in groceries. Aldi, the privately-held German multinational, has been playing a cautious and patient long game.

Aldi’s “value proposition” to consumers is starkly different to both Woolworths and Coles, and it’s clear Australians have warmed to what Aldi has to offer – a narrow range of good quality products at prices equivalent to the majors’ “specials”. The narrow range and small format stores have the additional benefit of quick and easy shopping for busy consumers. Woolworths has been losing market share quickly.

Its response has so far been too little and too late. Woolworths has tried to “shoehorn” an Aldi equivalent into the lower shelves of its large format stores. It suggests to consumers that they can get a basket of goods similar to Aldi’s at the same price within their stores if they look hard enough. In this regard – to paraphrase the late, great Z.Z. Hill – what Woolies are selling, Australians ain’t buying.

The limited success of this “Aldification” of Woolworths stores has, however, done damage to Woolworths’ core business of groceries. Whenever consumers choose the low cost goods within Woolworths, it is at the expense of the higher margin goods they also have for sale. This is evidenced by the steep decline in margins reported today – with sales in slight decline (2.5%) and projected earnings in free fall (28 to 35%). Woolworths is learning the hard way that while revenues are easy to lose, the same can’t be said for the fixed costs involved in running a national retailer.

In the background, again, lies Masters. Its disastrous drain on revenues has meant Woolworths has had little to invest in new stores elsewhere. While Woolworths has opened six new stores during the quarter, Aldi has flagged the opening of up to 80 new stores during 2016, on top of the 80 it opened this year. Its expansion is uncannily like a German train timetable and its geographical spread means most of these new stores will not cannibalise existing sales – something Woolworths can rarely achieve.

The Conversation

John Rice, Professor of Management, University of New England and Nigel Martin, Lecturer, College of Business and Economics, Australian National University

This article was originally published on The Conversation. Read the original article.


Do you think any other supermarket can match Aldi for value/price? 

Starts at 60 Writers

The Starts at 60 writers team seek out interesting topics and write them especially for you.

  1. Unfortunately we don’t have an Aldi in my rural town. If they come I would certainly give them a go. I will say that I am very happy shopping at Coles so Aldi would have to be very good to make me a permanent customer.

    4 REPLY
    • Debbie – Aldi isn’t “better” – just different. When you eventually get an Aldi, you will be bewildered at first, and then you will find that Aldi prices mean that you have to shift your thought processes a bit. The biggest shift in thinking is related to “Big Brand” loyalty. Cereals is a good example; Aldi have a Big Brand Nutri-Grain on the shelf at around $7, and next to it they have their own Power Grain. At $3.99. You work it out. They also have a whole range of other popular cereals under their own brand. All just as good as the Big Brand ones, but cheaper. Their meat is favourably priced as well, and their greengrocery range is just as good as Coles. Not as wide a range, admittedly, but good quality nonetheless. Having said all that, the next mind-set changer is that you will find you will shop at Aldi, then pop down (or next door) to Coles to pick up the few items that Aldi doesn’t stock. Simple.

    • I can assure you Aldi is very good. I have just spend 4 months looking after my grandchildren in Yeppoon where the shopping is so expensive I missed Aldi so much. It takes a bit of getting used to but when you use there products they are great especially there cleaning products.

  2. You want meat ,you must be reach in Australia to eat,,,. Coles others very expensive to Bye ? . Why – or you eat dog food ??????

  3. Aldi is going from strength to strength, since opening in my area. At first there were a lot of things not available, that has changed, rarely do I find I can’t purchase something. I switched several months ago from Woolies to Aldi, and am saving money!

    1 REPLY
    • When Aldi opened in Shepparton they were getting one single semi delivery every day, and there were plenty of spaces in the car park. 3 years down the track they were getting a B-Double every day, plus a single to top up. The car park is always close to full, including a good smattering of Audi’s and Benz’s.

  4. Few people trust the duopoly with its market domination strategies and their heartless screwing over of produce suppliers. It’s no surprise that Aldi has done so well. We certainly try to offset the duopolies unscrupulous behaviour by supporting Aldi……

    3 REPLY
  5. Once the big 2 reach total market domination they will charge what they like. prices will go through the roof. The duopoly has more than 80% market share in Australia more than twice as much any other comparative supermarket chains in the world. More competition is a good thing for farmers and shoppers, not sure about share holders?

    1 REPLY

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