The supermarket wars are heating up again as the titans of the industry see their empires crumble slowly from beneath them as underdog ALDI continues to ramp up its services. In recent months, Coles and Woolworths have begun aggressively dropping their prices to lure customers away from one another. But whilst they try to stop customers leaving to ALDI, customers continue to search for cheaper prices.
A wide variety of selected product categories have already been reduced at the large chains and saving money at the supermarket has certainly become easier. At this stage it seems very likely that as Coles and Woolworths try to compete with ALDI, customers can likely expect to see more heavily discounted prices appearing across the board as time goes on.
The fact that ALDI has been able to provide products of equal quality compared to Coles’ and Woolworths is testament to its success and the Australian consensus doesn’t lie, because ALDI is on track to turn over $15 billion by 2020, as revealed by Morgan Stanley. This should threaten Coles the most because their business model has been driven around promoting reduced prices. However, now it looks like its packing less of a punch next to the budget German retailer.
A smoke and mirrors effect in the market has been created by Coles and Woolworths as being the ones driving down grocery prices. In reality though, what's been happening when we read between the lines is that staple grocery products have been kept artificially low whilst higher value items have been increasing.
Lets take flour for example, a 1kg bag of homebrand plain flour at Woolworths costs only $0.75¢ which is the exact same price it cost 10 years ago. One of the main reasons this product has remained at the same price is because it’s one of the items that Choice Group monitor. Therefore Woolworths is playing the game of keeping 'monitored products' the same to prevent companies like Choice from giving them a hard time about price hikes.
In comparison, if we look at high-value items such as speciality cheeses, dairy products and chilled yoghurts, a track record will show that prices for all of these products have increased. Across the board on average these product’s prices have increased steadily for the past 3 years, whilst Coles and Woolworths have supposedly been driving prices down.
Head over to ALDI’s head office and you will discover that they have struck deals with local suppliers on products like dairy, potato chips, cheese, pastry and tinned tomatoes to the point that they are actually receiving them at 30% cheaper compared to Coles and Woolworths. Suppliers are happy to do this too because if they don’t, another company will. Also, as ALDI grows, suppliers will be hoping that their businesses will grow with it.
There is another school of thought that believes if ALDI continues to apply pressure on Coles and Woolworths then the suppliers will suffer because demand will decrease as their businesses grow larger, but this is yet to prove itself.
Being a customer I don’t particularly care, because the cost of living has been rising faster than the growth of salaries and we need a break. And right now, ALDI looks like the company that wants to help us. It presents a real solution for cash strapped individuals and families who have budgetary issues. As a result this means that ALDI should increase its market share from 6% to 10% by the end of the decade, or so Morgan Stanley forecast. These figures have been based on the increased average customer spend of $100 within a 4-week period at ALDI compared to $220 at Coles and $258 at Woolworths within the same time scale.
The trend adopted by ALDI customer converts is that they usually start buying simple staple items such as sugar, flour, dishwashing liquid and rice. Once their expectations have been met regarding quality, customers then begin to explore other products which ALDI has to offer (generally dry grocery lines). The level after this is fresh food. If customers continue to convert with this level of effectiveness then as a nation we can look forward to cheaper grocery prices coming sooner than expected.
Woolworths currently own 37.3% of the market share, Coles have 32.5% and IGA control 9.7%. This is set to change because ALDI may only own 1/3 of what Woolworths own in terms of market share, yet customer volumes tells a different story, one where ALDI holds 36.8% of total grocery buyers, roughly half that of Woolworth’s 72.5%.
Have you tried shopping at ALDI yet? Is it something that you are tempted to try after reading this article? Or do you really not care because you are loyal to your current supermarket? Let us know your thoughts in the comments section below!