From Bi-lo to Lidl — the changing face of Australia’s retail sector and tips for staying relevant

Will Lidl make an appearance in Australia?

A Lidl store in Vienna, Austria. Will Lidl make an appearance in Australia?

Once upon a time the retail world in Australia seemed to revolve around a handful of key players.

Coles vs Woolies, Harvey Norman vs. The Good Guys, Myer vs. David Jones, Target vs. Kmart vs. Big W.

How the tables have turned.

Where once the smaller brands were merely betting chips for big business, in the face of a continually shifting retail landscape, the old rules no longer apply and businesses on the periphery can snatch up precious market share.

Let’s have a look at how some of the big Australian retail players have faced disruption from outsiders and underdogs and how small businesses can bolster their relevance in a volatile playing field.

German-owned "hypermarket" Kaufland is launching in Australia

German-owned “hypermarket” Kaufland is launching in Australia.

Supermarket snapshot: Aldi’s ascension paves the way for German chains Kaufland and Lidl

Aldi’s shift in status from cult discount favourite to legitimate threat for the supermarket heavyweights serves as an interesting case study on the changing dynamics in the retail sector.

Looking back, local discount supermarkets Bi-lo and Franklins are all but a distant memory. When Bi-lo fell to Coles, and grocery wholesaler Metcash (owners the IGA franchise chain) acquired Franklins, this ultimately allowed for the German-owned Aldi, which entered the market in 2001, to expand its reach.

Thanks to solid marketing and an astute focus on local preferences, Aldi’s market share continues to grow, earning itself 8.6% of the $100 billion Australian grocery spend in 2016/17, placing Aldi third behind leaders Woolworths and Coles and increasing its lead against Metcash.

Once the disruptor, now even Aldi’s success in no longer guaranteed against new players entering the Australian discount supermarket space.

Read more: German retailer Kaufland gets set for Adelaide: Will it close in on Target and Kmart?

In light of news that privately-owned German retail behemoth the Schwarz Group is bringing its “hypermarket” Kaufland to Australia, Brian Walker, chief executive at Retail Doctor Group, believes it’s only a matter of time before Schwarz’s discount supermarket Lidl makes its debut.

“They will play at the deep discount department store model, like the Aldi approach… Aldi will be feeling threatened,” Walker told SmartCompany earlier this year.

Retailers face an uncertain future of increased multinational competition and ever-changing customer tastes. So what can small business owners do to encourage customer retention and brand growth?

Learnings for staying relevant in the retail space

Uniqlo is a major competitor for Australian retailers. Source: AAP

Keep things fresh

Let’s take a look at department stores, for example. Not only are local brands forced to compete amongst themselves, they collectively face a wider threat from highly sophisticated global forces.

Aldi and Kaufland each pose a threat to department stores by offering homewares while a range of international fashion chains, such as H&M, Zara and Uniqlo have already seized millions in fashion revenue, with the arrival of US-owned giants Amazon and TK Maxx creating further anxiety.

“Department stores began as retail innovators,” retail historian Matthew Bailey said in a recent piece in The Conversation. “Bit by bit, their competitive advantage has eroded.”

With the modern rise of incredibly cheap “fast” fashion, successful large-scale imports such as Zara and H&M understand and cater to customers’ desire for a high rotation of stock — as does Aldi with its “weekly specials” — playing into on-point trends and psychological principles of scarcity to keep customers hooked.

Ruslan Kogan built his online empire with a strong reliance on customer analytics.

Invest in your digital presence to offer superior customer service

Despite relentless competition from large overseas operations such as ASOS, Australian fashion retailer The Iconic has become a leading ecommerce site with a popular app and loyal social media following.

Their secret? By concentrating on UX design and ecommerce technology, The Iconic excels in customer service and offers expedited free delivery and returns, creating an effortless and fun customer journey.

Likewise, Australian entrepreneurial powerhouse Ruslan Kogan built his online Kogan empire via an appreciation of technological advances, digital marketing and targeted messaging, strongly relying on analytics to ensure a high conversion rate and to inform tailored improvements to customer experience.

“This would be the equivalent of a bricks and mortar retailer attaching a helmet camera to every single customer who walked into their store,” Kogan told Business Insider back in 2013.

Discount supermarket Aldi has built a reputation for offering high-quality products at a low cost

Discount supermarket Aldi has built a reputation for offering high-quality products at a low cost.

Perception is everything – focus on quality and value

Customers’ perceptions of value for money are not just related to cost; “value” and “quality” are subjective assessments of the perceived benefits a product will bring, weighed against what sacrifices a customer is willing to make to obtain it. Aldi’s value proposition as a discount retailer is hinged on this distinction.

Aldi’s advantage lies in customers who are happy to pack their own groceries and sacrifice wider product ranges in exchange for high-quality, low-cost products. Brand expert Michel Hogan said loyal customers’ choices have in turn received external validation with Aldi’s modestly-priced private-label products winning international awards, confirming perceptions “they’re offering quality products at a value price”.

Kate Morris’s entrepreneurial story has become synonymous with Adore Beauty. Source: Supplied.

Authenticity forges an emotional connection with your customers

Interestingly, Myer and David Jones’ decline has been partly attributed to poor customer sentiment.

Australian cosmetics darling Kate Morris, founder of Adore Beauty and Smart50 alumnus, has cleverly reframed her company against formidable billion-dollar multinational competitors by weaving her personal story into the brand’s marketing (something that Australia’s favourite underdog wine merchants Vinomofo also do very well).

Addressing the audience at SmartCompany’s SmartWomen event in August, Morris justified her approach: “I’m up against huge corporations that are relatively faceless. I think people like a face — why shouldn’t they know who is behind a business?”

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