Traditional supermarkets like Coles, Woolworths and IGA could cease to exist in 10 years time, and “we, the public are to blame”, says veteran retailer and entrepreneur Dick Smith.
Mr Smith offered the warning on Wednesday, one day after it was announced Woolworths had dumped Australia’s best-known tinned tomato brand, SPC Ardmona, as its private label provider after cutting a deal with a new Australian supplier.
Woolworths head of buying Stephen Donohue told Fairfax Media the chain had struck a deal to buy tomatoes from a local provider, who sourced fruit from the Murray Valley region in Victoria.
The move, Mr Smith said, had little to do with Woolworths and everything to do with Aldi.
As Aldi expands in Australia, it is increasing its range of branded products.
“What happened with SPC, that was driven by the fact Woolworths and Coles are desperately trying to get their costs down, because they are losing business to Aldi,” he said.
“They’ve either got to get their costs down or match Aldi by substantially reducing staff and their product range.”
Entrepreneur Dick Smith said Australia could end up with an Aldi monopoly within the next decade.
Moody’s Investors Service has estimated Aldi will expand its store base by about 16 per cent over the next two years, compared to a rate of below 3 per cent for Coles and Woolworths.
The credit rating agency said it expected the significant rollout of new Aldi stores, “combined with the increase in marketing spend, to result in continued competition and price deflation, negatively impacting the comparable same-store sales of its competitors [Coles, Woolworths and IGA] over the next two years”.
Aldi is investing more than $1 billion to upgrade its mature store network on the east coast, with a greater fresh food …
Aldi is investing more than $1 billion to upgrade its mature store network on the east coast, with a greater fresh food offering. Photo: Bloomberg
Mr Smith said the Moody’s forecast was “spot-on”, arguing that Aldi’s low overheads and product prices would allow it to “send one or both of our Aussie shareholder-owned food retailers out of business”.
He pointed to SPC-manufactured IXL jam, which usually retails at 72¢ per 100 grams.
Aldi’s equivalent product, the imported Grandessa jam, sells for one third of the price, at 28¢ per 100 grams.
“Their low overheads affect even simple things, like employment for teenagers stacking shelves, they don’t have that. A typical supermarket has around 100 staff, Aldi has 10 to 15.”
In a statement to Fairfax Media, Aldi Australia said, despite its “global heritage”, it was heavily invested in the Australian market.
“Currently, 90 per cent of Aldi’s everyday grocery range is private label, with the majority of these products sourced from Australian manufacturers … as a business, we do not support the introduction of pricing levels that are unsustainable in the long term and may put pressure on the supply chain.”
In its 444 Australia stores, Aldi Australia employs 15 to 20 people on average.
Spokesman for consumer group Choice, Tom Godfrey, said Aldi’s emergence had largely been “a good thing for consumers”, who had “suffered under a supermarket duopoly for years”.
“That said, it’s highly unlikely we’ll see an Aldi monopoly given Coles and Woolworths market dominance and the steps they are taking to compete on price,” he said.
“We’re more likely to see ongoing disruption with Aldi’s rival Lidl likely to enter the Australian market and online retailers such as Aussie Farmers Direct extending their reach.”
Retail analyst Brian Walker said the growth of Aldi suggested it would have the most number of physical sites of any supermarket within five years, however, he too doubted Australia would see the demise of Australia’s major supermarkets any time soon.
“Coles and Woolworths between them have still got 80 per cent of the market. Let’s say over next decade they each drop 10-15 per cent, but they will still be sizeable and employ a lot of people,” he said.
“I think they will be quite different business models … with some full service stores, also much smaller stores.”
Mr Walker said consumers will ultimately be the ones who drive market change.
“Look at Aldi’s growth relative to the incumbent supermarket. You would have to say consumers are choosing and winning.”