The Bankwest Future of Business: Focus on Supermarkets 2018 analysis stated, on the market share of Australia’s supermarkets and grocery stores as of 2017, Woolworths had the lion’s share of 36.8%, followed by Westfarmers Limited (Coles) with 30.9%, “others” with 16.2%, Aldi with 8.6% and Metcash (IGA) with 7.5%.
These particular statistics were based on a recent IbisWorld report which revealed that the arrival of German chain Aldi had forced Woolworths and Coles to slash their prices and to expand their private-label product ranges, and which has in turn led to smaller supermarkets and online retailers struggling to compete in the price-intense sector.
In Western Australia, the price of an average grocery basket has declined by 5.1% across Australia’s two largest retailers.
In Perth, prices of fruit and vegetables saw the largest decline in the year to September 2017, by 6.9%. Changes in Perth grocery prices were said to have likely been driven by the entrance of Aldi as well as the local economic environment.
While consumers may celebrate prices being slashed, retailers’ profits have been declining across the country.
Not the end of indies?
The smaller players are especially struggling to remain competitive, with an alarming 10.6% of supermarket and grocery stores with less than 20 employees exiting the market in the year up to June 2016.
Nonetheless, for specialised food retailers, the number of stores employing less than 20 employees rose by 3.8%, compared to a 7.5% decline in stores employing more than 20 staff.
Undeniably, independent grocers, stores and supermarkets have been feeling the pinch.
Even online stalwart Aussie Farmers direct folded in March, having buckled under pressure from the big two.
“We are simply no longer able to compete against the domination of the two major supermarkets and the influx of cheap imported produce,” said Aussie Farmers Direct.
AmazonFresh’s entry into the Australian grocery market later this year is set to further raise the heat for those still in the game.
However, Tim Sperry, who oversaw purchasing decisions for organic supermarket Whole Foods, maintains there are still opportunities for independent retailers.
He stressed that independent retailers have to focus on the three Ps — people, product and place.
“Be at the cutting edge for new products and help build the smaller brands out there,” he said.
“It is becoming harder to compete, but there are still tonnes of brands that are not going to be in the multiples.”
Market trends and opportunities
The Bankwest report highlights three noticeable trends “shaking up the grocery market”.
Firstly, there has been an increasing number of Australians opting for gluten-free food products, even without diagnosis of celiac disease.
There has also been a national increase in the preference for gourmet or premium food products among certain consumers.
The most significant is perhaps the $2bn (by 2018) organic food industry, which accounts for spending of $26 per person, and is projected to increase among millennials and those with young children.
In relation to these trends and the price competition, Coles and Woolworths are focusing on quality through private-label products to fend off competition from international competitors such as Aldi and Costco.
Woolworths had spent $1bn to reduce grocery prices (which is expected to fuel sales growth) while Coles’ ‘everyday value’ strategy aims to reduce shelf prices of about 4,100 products.
Also foreseen is fewer stores in the future, with grocery chains instead focusing on refurbishment to drive sales.
“The number of Australian grocery companies is expected to shrink by 1.4% in the five years to June 2022, while establishments will rise by 1.0%,” the report said.
The consolidation among mainstream grocery stores and supermarkets will create opportunities for smaller operators to diversify into high-growth niches and higher-priced markets.
“Smaller stores in areas of strong competition may need to rethink their value proposition and focus on niche customer segments by offering highly-specialised products,” it said.
Leveraging data and new tech
One key aspect would be new technologies that would help supermarkets and grocery stores reduce operational costs, sustain low prices and provide greater value-added services.
Businesses are expected to increasingly target customers through digital platforms to improve the customer experience and offer greater convenience, including in delivery.
Other developments anticipated include faster delivery systems and more supermarkets providing ‘click and collect’ shopping options, greater focus on data to better understand customer preferences, and greater emphasis on online channels in order to encourage customers to purchase online.
Data will be greatly leveraged to better understand customers, retain customers and grow loyalty, and to track purchase history.
The report cited Nielsen statistics, stating that 24% of Australian shoppers have ordered groceries online, and 55% are willing to do so in the future.
The Bankwest report ends with a positive outlook, that revenue is projected to grow by 9.3% in the five years until June 2022.