Half a billion gamble to create Aldi-killer
German supermarket powerhouse Kaufland has finally revealed details of its aggressive expansion plans for Australia.
Coles and Woolworths are worried. But so is Aldi which, like Kaufland, is a German global grocery goliath.
The international retailer's move into the local market has been quietly ticking away for months but this week it confirmed it had lodged paperwork for nine sites in Victoria and had been given approval to go ahead with stores in Oakleigh South, in the city's south east, and Coolaroo, in Melbourne's north.
Three stores located in Dandenong, Epping and Chirnside Park were announced in March.
It already has six locations on the drawing board in South Australia and Victoria, meaning the national network will be bumped up to 20 even before its expansion into Sydney is announced.
"It's moving along at a rapid pace, it's certainly moving much faster than many of us expected," Queensland University of Technology marketing professor Dr Gary Mortimer told news.com.au.
"If we went back even as recent as six months, the initial indication was that they would launch somewhere between eight and 12 stores in 2020.
"Now it looks like they've decided to push that out to 2021 and capture more sites."
The Victorian sites, combined with the distribution centre in Mickleham, close to Coolaroo, and proposed headquarters will tip half a billion dollars into the state and provide up to 2400 new jobs, Kaufland Australia managing director Julia Kern said.
"We are committed to long term, sustainable investment in Victoria and we are delighted to be exploring opportunities in both metropolitan and regional communities," she said.
"Our aim is to deliver our values of quality, simplicity, variety and price throughout Victoria and Australia."
Construction has already begun on two test stores to be based in Victoria.
"Our Dandenong store marks a tremendous milestone in our development here in Australia, and we are very happy to break ground for our first store in Victoria." Ms Kern said.
"Australia is one of the fastest growing regions in the world, and we are excited to grow with it.
"Our aim is to raise the bar in retail excellence and provide an uncompromising quality food shop for our customers."
THREAT TO AUSSIE FAVOURITES
Kaufland has the size and scale to take on the Aussie grocery sector dominated by Coles, Woolworths and Aldi given it is backed by the fourth biggest retailer in the world, Schwarz Gruppe.
Aldi and Kaufland share much in common: their country of origin, their industry and that they have a habit of shaping up markets they enter.
But they're not carbon copies. For a start, Kaufland stores are huge. Up to 20,000 square metres. That's up to 15 times bigger than an Aldi and five times bigger than a big Coles or Woolworths.
It is more like the American retailer Costco than Aldi in that respect, albeit without memberships.
Also, the Kaufland range is different to Aldi. They are both cheap, but Aldi only stocks around 1300 different items, mostly their own brands. Kaufland has more like 40,000, according to consultants McKinsey, and it sells real brands.
But don't expect Aldi to take its new rival lying down.
As for Coles and Woolies, Dr Mortimer said the two major local players have laid foundations to survive a hyper competitive market.
The big two put an end to the price war ahead of the arrival of the powerful German rival.
The two revealed a strategies in May to gain "price trust" from their consumers by removing short term specials, instead focusing on more permanent lower prices.
Both have also beefed up their online capabilities and dispersed a fleet of smaller stores into metro areas to cash in on areas with high foot traffic.
Dr Mortimer says the inclusion of such a massive retailer into the market is a vote of confidence for business conditions, further negating claims made by David Jones boss Ian Moir that the sector was failing in Australia.
"When a global retailer makes a conscious decision to enter the Australian market, it tends to reject the arguments that there's a retail recession," he said.
"Clearly Kaufland understand that the market is ripe for exploitation."
Kaufland stores also house a full line of discount department store goods, presenting increased competition for the already vulnerable Big W as well as Wesfarmers' Kmart and Target.