Aldi, the German discount supermarket chain pushing hard into the Australian market, is likely to pour more money into its marketing budget in the eastern states.
Analysis by Moody’s shows a further risk to Coles and Woolworths with Aldi, having reached what it typically regards as a critical mass, expected to raise its marketing budget.
“We would expect this to increase the rate of market share gain,” writes Ian Chitterer, a Moody’s vice president, in the latest issue of Moody’s Credit Outlook.
Data released last week by research company Roy Morgan shows Aldi has increased its market share in Australia’s supermarket sector to 13.2% for the 12 months to March from 12.5% for the year to September 2016.
Moody’s, citing Roy Morgan, says Aldi’s growth has mainly been at the expense of Woolworth,s whose share over the same period fell to 35.7% from 36.3%.
IGA, owned by Metcash, saw its market share fall to 9.3% from 9.8%.
Coles, owned by Wesfarmers, maintained its share at 33.2%.
Woolworths’ market-share gap against Coles fell to 2.5% as of March 2017 from 6.7% in March 2015, as this chart shows:
The supermarket industry in Australia has been under increasing pressure from the structural changes driven by Aldi’s discount format which has contributed to lower prices across the industry and falling margins at both Woolworths and Coles.
“We expect Aldi to roll out stores at around 6x-8x the rate of Woolworths and Coles over the next few years,” says Chitterer.
“Moreover, Costco Wholesale Corporation (A1 positive) also continues to expand in Australia, and our expectations are for competition to remain a significant threat to the incumbents.”
Moody’s expects the market shares of Woolworths and Coles, in relation to each other, to remain stable over the next 12 months, with the key risk being how much more market share Aldi takes.
In the latest quarterly results, Woolworths broke out of its flat sales growth loop, overtaking its main competitor Coles. In the quarter to April 2, food sales rose 5.1% to $ 9.27 billion. Comparable sales increased by 3.9%.
In the latest quarter from Coles, headline food and liquor sales up 1.2% to $ 7.6 billion. However, comparable food and liquor sales for the three months increased just 0.3% and comparable food sales were 0.4% for the quarter.
Read more posts on Business Insider Australia »
