CREDIT rating agency Moody’s has waded into the supermarket war, saying Aldi’s “maturing” customer base spells big trouble for the established players.
In a note this morning, Moody’s vice president Ian Chitterer said Aldi’s store rollout would have a negative impact on Woolworths, Coles, IGA and small, independent supermarkets.
“Aldi’s significantly increased rate of expansion, expected material increase in marketing expenditure, and forecast rise in basket size are all credit negative for the main line supermarkets,” he wrote.
Aldi, which has now surpassed IGA as Australia’s third-largest supermarket operator, has forced its competitors to reduce food prices by around 1-1.5 per cent annually.
Rising fixed costs such as store leases and labour, combined with continued pressure on shelf prices will further drive down margins, Mr Chitterer warns.
It comes after research company Roy Morgan released data showing Aldi had grown its share of the supermarket sector from 11.6 per cent in March 2015 to 12.1 per cent in December.
“The supermarket industry in Australia has been under increasing pressure from the structural changes driven by Aldi’s discount format over the past few years,” Mr Chitterer wrote.
“Industry margins are also being driven lower (Coles is the exception), as was seen in the UK when discounters like Aldi started to gain market share. Shoppers are far less loyal to any particular store brand, and value is the key driver of their behaviour.”
He notes that while Aldi’s 12.1 per cent dollar share of the market is dwarfed by Woolworths and Coles at 37.3 per cent and 32.5 per cent respectively, its customer numbers tell a different story.
Aldi currently has fewer than 400 stores compared to Woolworths and Coles, which have a combined store base of 1760.
In an average four-week period, 5.3 million consumers shop at Aldi, 10.5 million at Woolworths, 10 million at Coles, just more than four million at IGA and almost four million at other supermarkets.
Around 37 per cent of these shoppers visited at least one Coles store, one Woolworths store and one other supermarket during this time.
“Based on the above, we see that Aldi has a 12.1 per cent dollar market share, but is visited by around 37 per cent of total supermarket shoppers, versus 69 per cent at Coles and 72.5 per cent at Woolworths,” he writes. “Why is this?”
Because Aldi’s prices are substantially cheaper, its basket size will always be lower, effectively understating its dollar market share for any given basket of goods.
Aldi customers start out purchasing basics such as cleaning products, pasta, rice, and sugar, then migrate to other dry grocery items and finally fresh food.
“Herein lies the potential risk for Woolworths and Coles,” he writes. “As Aldi expands and its customer base ‘matures’, we expect to see its basket size continuing to increase.”
Aldi’s expansion into South Australia and Western Australia this year will further increase its market share and put pressure on the margins of other supermarket operators.
Aldi’s store base is expected to expand by around 16 per cent — up from 9 per cent in 2014 — compared with Woolworths and Coles at 4 per cent and 3 per cent respectively.
The German discounter will also benefit from a “clean slate”, with each new store taking market share from existing operators without cannibalising other Aldi stores.
The other big risk, Mr Chitterer writes, is that with Aldi having reached “what it typically regards as a critical mass”, it is expected to significantly ramp up its marketing.
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