Aldi vows to maintain pressure on rivals

Sue Mitchell
January 21, 2015
The Age
Discount retailer Aldi Australia has vowed to maintain pricing pressure on rivals in the $85 billion grocery market, after increasing sales by 13 per cent in 2014, outpacing food and liquor sales growth at Coles and Woolworths almost three-fold.
Aldi Australia’s sales reached $6 billion in the 12 months ending December 2014, compared with $5.3 billion in 2013. The growth was underpinned by strong same-store sales growth and 25 new stores.
In comparison, Woolworths’ Australian food and liquor sales grew 4.7 per cent to $41.7 billion in fiscal 2014 and Coles’ food and liquor sales rose 4.6 per cent to $29.2 billion.
“We’re very pleased with the progress. We had a successful 2014,” Aldi group managing director Tom Daunt said on Tuesday. New stores took store numbers to 366, lifting Aldi’s market share in eastern states to 11 per cent.
UBS expects Aldi’s sales to reach $9.3 billion in five years and says revenue could hit $13 billion, challenging Coles’ and Woolworths’ stranglehold over the grocery sector, if it fixes issues such as checkout queues.
Mr Daunt agreed that UBS’s $9.3 billion forecast was “perfectly possible” and said Aldi’s national market share could approach 15 per cent over time as it opened up to 120 stores in Western Australia and South Australia and added 20 stores a year in the east.
“We have about 11 per cent share on the eastern seaboard (and) I’d expect we’d obtain that sort of success in the new markets of Western Australia and South Australia. There’s probably a little bit more market share that we could obtain out of existing markets on the eastern seaboard,” he said.
Aldi would maintain its lowest-price position in the market, despite renewed discounting and price investment by the big chains, Mr Daunt said. A basket of branded and private label groceries at Aldi was 20 to 30 per cent cheaper than a similar basket at Coles or Woolworths and the discounter enjoyed strong relationships with suppliers, he said.
“At the core of our business model is the need to offer the highest-quality product at the lowest price. It’s a very dangerous territory to get into for a discounter to allow others to encroach on that area and that’s certainly not part of our plan.
“We will always select the lowest price we’re able to afford to sell the product at, which is very different to the standard retail convention, which is to price products at the highest you’re able to get away with.”
But Mr Daunt played down speculation that Aldi’s sales could double or triple in the foreseeable future, saying “it’s not going to happen”.
“Despite our success over 14 years we do remain somewhat of a niche retailer, with a limited range of very high-quality products sold at heavily discounted prices. The niche nature of our business model won’t change into the future, even though Aldi has added more national brands to its private label range and is expanding its fresh offer,” he said.
“We’re a company that’s not focused on year-by-year sales growth and we’re not focused on market share. What we are focused on is investing in Australia over a long period of time to produce a sustainable, successful operation.”
Mr Daunt defended Aldi’s limited partnership structure, which averts the need to lodge detailed accounts with the corporate regulator, and has no plans to lift Aldi’s financial disclosures.
“We have set up the company to be a private company because we believe it gives us distinct advantages. That allows us to focus internally on the operations of the business and what our customers need,” he said.
However, unlike multinationals such as Apple and Google, Aldi appears to have paid a full corporate tax rate since becoming profitable five years ago and has no intercompany loans or licence fee arrangements with its German parent. Aldi Australia’s average corporate tax rate in the past few years was almost 31 per cent of net profit and in 2013 it paid $80 million in corporate tax.
Mr Daunt said Aldi Australia was keeping an eye on other markets in Australasia but had no plans “at this stage” to expand in Asia.