SYDNEY, Australia -- The $25 billion Australian supermarket industry is preparing for the arrival here of the German Aldi chain, which offers a limited selection of brand items at very low prices.
The majors, Woolworths, Coles and Franklins, with the independent Davids in tow, are determined to resist this new challenge to their dominance of Australia's food market, and are gearing up for what may turn out to be a major round of price wars, according to industry observers.
Aldi, which carries only between 500 and 1,000 product lines -- mostly basics like flour, eggs and rice -- on its shelves, reportedly sells key branded products at half price, a situation Australian supermarkets, which stock some 20,000 to 30,000 items, will find quite unsettling.
Aldi's representative here, Michael Kloeters, declined to be interviewed by SN, but the chain is reported to be aiming at providing a more expanded service in Australia, offering up to 2,000 products.
Industry sources note that Aldi's ability to source products from around the world at low prices gives it the leverage to sell these at up to 30% below the levels of other supermarkets.
Although the sources indicate Australian supermarkets will try to counter Aldi's pricing tactics, this might affect food manufacturing margins.
Andrew Reitzer, chief executive officer, Davids, sounded a note of alarm, warning Aldi would disrupt the "entire food retailing trade if it adopts the same strategy in Australia as it has overseas."
"With Woolworths' volumes in the Australian marketplace," Roger Corbett, Woolworths CEO, said he did not expect Aldi to offer a better deal than his chain.
Coles CEO Dennis Eck made it clear the chain would best Aldi, but at the same time said it would ensure that its suppliers did not undercut it and provide Aldi with lower prices.
The German chain is expected to launch its operation here sometime in the middle of the year. This will coincide with the imposition of a new 10% tax on goods and services (GST). So far, Aldi is reported to have acquired about 20 sites in and around Sydney, where land is at a premium, and is looking for about 80 more.
The supermarket industry in Australia is one of the most competitive in the world, observers said, and there are some doubts that the German chain will be able to hold its ground here where margins are already very tight.