Supermarket shelves have been a source of constant change over the past five years. The introduction and growing popularity of private label merchandise by retailers has led to supermarket price wars and intense competition across the industry.
With sales rising about 3.4% per annum in the five years to 2011-12, the industry effectively experienced a battle of the brands between Coles and Woolworths, with both retailers fighting for a greater share of consumer dollars. Trading conditions across the industry were also influenced by rising food costs and changing consumer preferences and variations in consumer shopping habits. Revenue streams for supermarket operators over the period were also affected by fluctuations in the level of real household disposable income, consumer sentiment, store trading hours and population levels.
The industry will continue to resemble a battlefield over 2011-12, with sales expected to post modest growth of 2.5% to $83.7 billion. Despite solid income growth, price-savvy shoppers and a contraction in consumer sentiment will lead consumers to favour saving over spending due to the turmoil in global financial markets and a softer domestic economy.
Industry at a Glance
The challenging retail environment will see industry heavyweights Coles and Woolworths continue to implement price declines across a range of everyday household items. Despite the strong competition, sales growth will be aided by consumer demand for private label goods along with the rapid use of weekly specials and other marketing initiatives by industry retailers to retain consumer interest. However, consumers may increasingly demand bulk-packaged groceries owing to the popularity of bulk retailers such as Costco.
In terms of total market share, goods retailed by the industry may also be purchased from a range of other vendors, including convenience stores, fruit and vegetable stores, takeaway food stores, department stores and specialised food stores. IBISWorld estimates that this industry accounts for about 90% of supermarket and grocery items with the remaining 10% derived from sales by other retailers. Hence, IBISWorld estimates the total retail market for supermarket and grocery goods to average about $89 billion.
Supermarket sales will continue to dominate the retail sector over the next five years, with revenue forecast to rise from $85.9 billion in 2012-13 to $94 billion by 2016-17, a rate of 2.4% per annum. Sales growth over this period will be driven by growth in disposable income levels and the continued expansion of private label merchandise. Growth will also be supported by an overall recovery across the domestic economy, which will create a more stable trading environment for retailers. However, competition across the industry is expected to remain intense, with the potential for further Costco stores set to sway consumer shopping trends again.