Coles, Woolworths, IGA to lose market share to Aldi, David Jones, says Moody's

Date
    August 13, 2015


Coles, Woolworths and Metcash's IGA chain are facing increased competition at both ends of the socio-economic spectrum as discounter Aldi ramps up its Australian presence and department store chain David Jones upgrades its gourmet food offer.   

Ratings agency Moody's says Woolworths, Coles and IGA supermarkets will continue to lose market share over the next 24 months as Aldi expands into new markets and as David Jones skims off wealthier customers by refurbishing its gourmet food halls.

    David Jones targets higher income consumers who are likely to be less price sensitive, spend more in absolute terms.
    Moody's report

"These factors will shake up the strong duopoly structure of Australia's grocery market," Moody's said in a report on Thursday.

"As such, we expect the market share and profit margins of the two incumbents, but Woolworths in particular, to remain under pressure over the next 24 months."   


Moody's expects same-store sales growth at both Coles and Woolworths to come under pressure as Aldi opens 60 new stores over the next 12 months, increasing its store footprint by 16 per cent.   
Margins squeezed

Woolworths' same-store food and liquor sales, which fell in the June quarter for the first time in 12 years, are expected to remain in negative territory over the next two quarters – falling more than 1 percentage point by mid-2016.

At the same time, Woolworths'  food and liquor margins are expected to fall from 8 per cent in 2014 to around 6.5 per cent by the end of fiscal 2016 as it cut prices on national brands and private label groceries to better compete with Coles and Aldi, Moody's said.   

"Based on the assumption that private-label comprises around 15 per cent of sales at Woolworths, we estimate that a 5 per cent decrease in private label pricing would result in an EBIT (earnings before interest and tax) decline of around $270 million, or 7 per cent on a reported basis," the ratings agency said.

Moody's estimate is in line with recent forecasts by brokers such as JP Morgan and Morgan Stanley.
Aldi expansion to hurt

Moody's expects Coles' same-store sales growth to weaken marginally – falling from around 3.7 per cent in the June quarter 2014 to around 3.4 per cent in 2016 –but remain in positive territory.

This should enable Coles to maintain or improve margins slightly to around 5.4 per cent by year-end.

Moody's expects the bulk of Aldi's market share gains in South Australia and Western Australia – where the discounter plans to open more than 40 stores over the next 12 months – to come mainly at the expense of IGA supermarkets and other independent retailers. 

"However, we still expect Woolworths and Coles to lose some market share, with the companies unlikely to benefit from opportunities resulting from IGA's weakness," Moody's said.

"Furthermore, we expect Aldi's expansion to boost price competition and reduce comparable-store sales and margins at a time when Woolworths and Coles reported average price deflation of around 1.7 per cent for the January to March quarter," it said.
David Jones' gourmet offering

Last month, David Jones' new owner, South African food and apparel retailer Woolworths Holdings, confirmed Fairfax Media reports that it planned to revamp its food halls and eventually open stand-alone upmarket food stores .

"While we expect that the scale of David Jones food retail, even over the longer term, will be very small in comparison with Woolworths and Coles, it will still lead to further market share losses for the Big Two," Moody's said.

"More importantly, it will mean that they will face increased competition at both ends of the socio-economic spectrum."

"David Jones targets higher income consumers who are likely to be less price sensitive, spend more in absolute terms, and be more profitable than the customers the discounters are targeting," Moody's said.

Read more: http://www.canberratimes.com.au/business/retail/coles-woolworths-iga-to-lose-market-share-to-aldi-david-jones-says-moodys-20150813-giy6x0.html#ixzz3ijPcqRwh

Very_Vinnie wrote on Aug 6^th, 2015 at 9:54pm:



The Friends of Theo Albrecht Jr lobby group suffered a bit of a strategy blow in recent weeks - with Australia's Woolworths chain of 872 outlets #employing 111,000 Australian workers# cutting the price of its home-branded lines to match - and in many examples, under-cut - prices on Albrecht's home-brand equivalents

This is a good move, in the interests of Australian "mums and dads" and large Australian superannuation funds' - as the bulk of Woolworth's shareholders

From EVERY angle, this is a POSITIVE for EVERY Australian

aquascoot wrote on Aug 14^th, 2015 at 8:56am:



its never fails to amaze me that an australian champions foreigners killing Australian business....but crook does it all the time..he cheered when the book companies went under.... then he has the hide to whinge about penalty rates....what a hypocrite.sad very sad indeed.

I am not even sure if Aldi allow the union.. to be honest I know they pay above award rates...so there must be some catch to it..but like you say.. you never see a staff member stopping even for a second...and its a luxury to have two check outs working.

aquascoot wrote on Aug 14^th, 2015 at 8:56am:


That's certainly true. But what price does the economy pay in terms of the dividends of market competition by the continued dominance of Wesfarmers & Woolworths across a whole range of retail sectors?
Of course they are not the only companies wielding too high a level of monopolistic competition but they are the standouts. A shakeout is coming and the result will be better for the consumer & the economy.
This I believe.

Unforgiven wrote on Aug 14^th, 2015 at 10:39am:



our local Aldi is now almost like a mini Bunnings.. food is right up in the far corners..... the middle of the shop is full of mostly junk items....last week even washing machines and fridges its chaotic..

I bought bananas and I think they were fridge burnt... lets put it this way after a week they were still not ripe...threw them away...I do agree a lot of their food prices are cheaper.. but to me cheaper isnt always the best... and the shopping experience isnt pleasant.. not for me anyway.

cods wrote on Aug 14^th, 2015 at 9:28am:


So which supermarket is bringing in self serve check outs ? It's certainly not Aldis who employ locals to man their own checkouts

That's absolute rubbish rusty.
The most outspoken people in opposition to the duopoly have come from conservative ranks.
By contrast, it was only last week that the economic genius, Bowen, blasted the idea of improving the competition law by inserting the "effects test".

Eat your collective hearts out Coles, Woolies and IGA, Aldi is pulling your pants down you robber barons.

You deserve every single thing you get. You have been reaming the Australians for decades, finally a hero comes to destroy the  monopoly you have had to yourselves for far too long.