Retail

Aldi stores are “cannibalising” each other amid rapid store expansion, say analysts

Emma Koehn /

Aldi

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

German discounter Aldi has a strong track record of frightening the big Australian supermarkets with ambitious plans to capture customers, but a recent UBS report suggests the cult-favourite retailer might be eating itself.

The UBS Evidence Lab Grocery Competition Monitor suggests the impact of Aldi’s expansion into South Australia and Western Australia has been less than anticipated, reports The Australian.

Meanwhile, UBS analysts estimate around 78% of the chain’s east coast stores and 63% of the store fleets in Western Australia and South Australia are “cannibalising” sales from each other.

“Despite less than half the penetration of the east coast, a larger than expected number of Aldi SA/WA stores are cannibalising each other, with this impact accelerating in the fourth quarter of calendar 2017,” UBS analyst Ben Gilbert said.

The UBS report suggests these figures add further risk to more store openings that Aldi plans to complete on the west coast.

Since 2016, Aldi has championed its national expansion plans, and has previously committed to around 120 stores in the South and Western Australian markets. It currently operates close to 500 stores across the country.

The supermarket chain has also committed to store refurbishments and a new fresh food offering in its quest to capture more consumers from Coles, Woolworths and IGA.

It has shown it is a powerful force in the Australian grocery space: since launch in 2001, the retailer has built up to an estimated $11.9 billion in annual grocery sales, overtaking IGA’s takings of $8.4 billion in 2017.

Aldi now has a 13.2% share of the local grocery market, according to Roy Morgan data on consumer spending in 2017.

However, UBS analysts believe the impact of Aldi’s expansion into the South and Western Australia markets will be “less that expected, given the percentage of Coles/Woolworths/IGA stores currently competing with Aldi in SA/WA is not too dissimilar than the east coast”.

SmartCompany contacted Aldi but did not receive a response prior to publication.

NOW READ: Why this small business owner registered an Aldi company name without the supermarket knowing

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Emma Koehn

Emma Koehn is a former senior SmartCompany journalist.

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