With the imminent opening of German discount retailer, Kaufland we thought we would have a closer look to find out who they will present the biggest challenge for.
According to the AFR, Kaufland has secured 6 sites within Australia and is expected to open its first two stores in FY19. They have 5 store formats, ranging from 3,000m2 to 30,000 m2 (5 to 6 times the average size of a Coles or Woolworths). It stocks about 30,000 SKUs compared with 1,350 at Aldi and 22,000 at Woolworths and Coles, the additional ranges being in discount department store territory: clothing, toys, hardware and homewares.
Born out of Germany under the parent company Lidl & Schwarz KG, opening officially Kaufland ‘hypermarket’ in 1984. Over the next 10-15 years they extensively expanded throughout Germany and began entering other European cities.
Their European offer appears to directly compete with Aldi’s mix of grocery and special buys. However, Kaufland balance out private label with more brands such as Adidas, Philips, AEG and Nivea. As with Aldi, price is a dominating factor, clearly brandished across their catalogue. The supermarket experience is also of the no-frills variety, the onus on the customer to shop the store right through to the cash desk.
The Aldi customer is ripe for poaching, their advertising takes aim at customers who are willing to try something new and different. As an established customer of the discount, European offer it will not be too far of a stretch for the curious, discount-hunter to give Kaufland a go. Aldi currently holds 11.4% of the market having increased 0.5% in 2018. Woolworths was the other clear winner in 2018, increasing their share 1.4% to 34% (Source: Roy Morgan April 2019)
Total grocery market – % market share 2017 cf. 2018
The bigger question is, how will this affect the overall supermarket landscape? With a more price conscious consumer, the introduction of Kaufland and sister offer Lidl, as well as Amazon’s entry to grocery and Costco’s continued expansion… the indications are that we are moving towards the more European discounted supermarket climate.
That being the case, after Aldi, the next supermarket player to be potentially challenged would be Coles. Triumphing from the Woolworths/Coles price wars, they have positioned themselves closer to the discount end of the supermarket spectrum. However, since separating from parent company Westfarmers in December 2018, they can now look at their core business, refocusing on customer experience as a part of the mix, where competing on price alone might now look like a hiding to nothing.
Another evolving consumer preference is the trend away from the ‘big shop’; consumers are shopping more frequently. Driven by a growing awareness of wastage, more apartment living and the time poor consumer, we are shopping more frequently, daily even. According to Roy Morgan in 2014, 50% of consumer were shopping every day or several times a week. In 2018 this figure has increased to 55%. The market is responding to this with continued opening of smaller format stores such as Woolworths Metro.
Consumers will always need food and grocery, but with a 5-year CAGR of 2.67% (ABS Retail Trade report as at Feb 2019 read more outcomes of 2018 Retail Trade report here), these new entrants will need to steal share from established players in order to survive. Now, more than ever, the customer is less brand loyal and willing to try new offers based on their needs and preferences; so if these new entrants can deliver on a strong saving, convenient access (i.e. delivery) or an appealing offer (mix of brands), then they are assured success. Either way the days of the duopoly are clearly numbered, which should be good for consumers.