Kaufland predicted to have major impact on margins
Morgan Stanley is predicting major retail disruption when German 'hypermarket' Kaufland launches here.
“The Australian supermarket industry is ripe for further discounter disruption as Kaufland soon enters,” analysts Thomas Kierath, Monique Rooney and John Lee said. “Kaufland’s entry to Australia likely limits market growth, reduces the prospects for considerable margin expansion and leads to a sector P/E de-rating.”
Morgan Stanley expects the company to open up to 10 Australian stores by late 2019 with a possible 133-295 locations across the country in the longer term based on the chain's penetration in Europe.
Sales of $480 million are expected by FY20, surging to $3.3 billion by FY26 if its store count reaches 56.
While it's been compared to Aldi, Kaufland stores are usually 15 times bigger and stock more than 40,000 grocery and liquor brands, compared to only around 1300 at Aldi. But one thing both German retailers have in common is that their products are cheap.
Kaufland has already purchased two Australian property, one on the fringe of Adelaide’s CBD and a former Bunnings site in Victoria.
Former Metcash Executive General Manager Retail Mark Hewlett has been hired as chief operating officer.
Before joining Metcash, Hewlett was national head of operations for Woolworths' $7 billion petrol and convenience store business. British-born Hewlett also worked at Kaufland's sister chain Lidl in the UK more than 15 years ago, where he managed stores and worked in property, logistics and commercial.
Kaufland is owned by the Schwarz Group, a privately-operated German company which also owns discount German supermarket chain Lidl. It describes itself as the world’s fourth largest retailer.
It currently has more than 1230 stores across Germany, the Czech Republic, Poland, Bulgaria, Croatia, Romania and Slovakia. It employs approximately 150,000 employees. Australia will be the first English-speaking country it has tackled.
In addition to groceries and alcohol, Kaufland also sells general goods such as electronics and kitchen appliances. Unlike Aldi, which mainly stocks its own brands, Kaufland offers thousands of household brands as well as its own labels.
Aggressive pricing predicted
While Kaufland's sales and market share will be relatively small compared with Woolworths, Coles and Aldi, Morgan Stanley the discounter could have a major impact on margins by forcing the major chains to further reduce prices.
"Very high labour costs, high store rentals, low levels of competitive intensity and high margin structures mean that the Australian supermarket industry is ripe for disruption," analysts noted.
"While discounter penetration has risen in recent years, it is still well below global averages and historical levels in Australia (around 8.8%)," it said.
"We think that as discounters gain share, industry sales growth will remain low and prospects for considerable margin expansion are unlikely. As Kaufland enters Australia we think the market will reassess long-term margin assumptions," it said.
Australia's liquor retail market is already crowded. Roy Morgan reports supermarket-owned chains now account for 72.3% of the total market share, with other alcohol retailers trending either downwards or steady. The independents’ share declined markedly in 2016 (from 12.7% to 10.4%), while duty free stores also suffered (now accounting for just 0.5% of total alcohol retail dollars spent, down from 1.4%).
Overall, supermarket chains such as Dan Murphy’s, First Choice, Liquorland, BWS and ALDI Liquor amassed $10.5 billion of the total amount spent by Aussies on alcohol in a retail environment in 2016. Hotel bottle shops (such as Thirsty Camel) accounted for $1.8 billion, ahead of independents such as Cellarbrations ($1.5 billion), wine clubs ($0.7 billion) and duty free stores ($0.1 billion).
When contacted by The Adelaide Advertiser, the company declined to provide details of its planned rollout in Australia.
“We are happy to confirm that Kaufland’s property purchases mark important milestones on our way to opening the first Australian stores ... with regards to the next steps, we currently cannot make any detailed statements,” said Kaufland in a statement.