As Aldi`s impact on Australia`s $90 billion supermarket industry weakens, grocery suppliers are stepping up partnerships with new entrants Amazon and Kaufland.
Nearly half of Australian grocery suppliers are in talks with Amazon and nearly 15 percent have started talks with German supermarket chain Kaufland, according to a 2018 supplier survey by UBS (UBS).
About 48 percent of suppliers surveyed said they were in contact with Amazon, compared with 18 percent last year. Amazon is expected to accelerate the roll-out of food this year.
About 14 percent of suppliers said they were in contact with Kaufland, up from 2 percent a year ago. Kaufland, a sister chain of discount supermarket Lidl, is believed to have acquired four locations and is expected to open its first store in Australia in 2020.
Suppliers are moving quickly to build partnerships with new entrants and establish marketing channels to reduce their dependence on Woolworths and Coles. For a decade, the two supermarkets` share of Australia`s profit pools for food and groceries has been growing.
The German discount supermarket Aldi, which entered Australia in 2000 with annual sales of nearly 8 billion yuan, has long been a popular source of new business for suppliers. Aldi stole the market from IGA retailers supplied by Woolworths,Coles and Metcash, and it is estimated that Aldi accounts for 10% of Australia`s East Coast grocery market.
However, UBS`s survey showed that despite strong growth in new stores, the impact of Aldi and (Costco) on Woolworths and Coles appears to be weakening.
Only 14 percent of suppliers surveyed said discount supermarkets had a significant impact on other supermarkets this year, down from 41 percent in 2017.
UBS analyst Ben Gilbert said suppliers believe Aldi`s impact on Australian supermarkets has peaked.
After years of strong growth, UBS believes Aldi`s same-store sales growth on the east coast slowed to between 0 and 2 percent as Woolworths gained strength and new Aldi stores eroded sales from existing stores. Suppliers do not expect any improvement in 2019.
Even in South and Western Australia, where Aldi has been operating for just two years, UBS said the new Aldi stores appeared to be eating away from existing ones, doubling the number of outlets set up by Aldi and putting its "ambition" from 60 to 120 at stake.
UBS believes Aldi needs to improve its fresh food category in order to gain more share from big supermarkets, "but suppliers believe Aldi does not have the best strategy to win fresh food," although Aldi is already renovating its stores and expanding its range of fresh foods.
In 2017, 82% of suppliers said Aldi had the best strategy to win the share of fresh and perishable foods, but by 2018 it fell to zero. Only 28 percent of suppliers surveyed said Aldi`s strategy for non-food, fresh and packaged foods was well above 61 percent in 2017.
Now, Aldi,Woolworths and Coles are facing more intense competition from Amazon and Kaufland in fresh and packaged food.
