Dick Smith claims Aldi will send Coles and Woolies broke and says “extreme capitalism” is to blame

Dick Smith

Dick Smith. Source: AAP/Lukas Coch.

Supermarket giants Coles and Woolworths will be forced to replicate the model used by German discount grocer Aldi or face financial ruin, according to prominent entrepreneur Dick Smith.

Smith believes we have now reached a point of “extreme capitalism” that will eventually see the Australian food market dominated by international giants like Aldi, Lidl and Walmart at the expense of smaller, Australian-owned companies – including his own.

Read more: How The Reject Shop and other specialist retailers are also feeling the heat from Aldi

Speaking to SmartCompany this morning, Smith predicted his own food business will eventually fold as it becomes increasingly hard to source food products locally and “support local farmers”.

While Dick Smith Foods was once turning over as much as $80 million a year, Smith says that figure is now closer to $18 million. The entrepreneur counts “a couple of hundred” people among the business’s direct and indirect employees, which includes contractors and growers.

“It must eventually fail, because we support Australian farmers and workers,” he says.

“There’s no way we can compete with products coming from other countries because of the labour costs.”

Smith’s comments come in wake of a decision by Woolworths to walk away from its contract with Victorian food-processor SPC Ardmona in order to source its own brand of tinned tomatoes.

The “goodwill” deal, which was worth $70 million over five years, had been in place for two years.

In a statement issued today Smith said Woolworths is not to blame for the decision.

“Blame ourselves and capitalism as it gets to the limits of greed,” he said.

Smith drew direct links between the rising market share of Aldi and need for the supermarket duopoly to change their operating practices, agreeing with a previous statement from credit rating agency Moody’s that Aldi’s popularity among Australian shoppers is a major concern for Coles and Woolworths.

“Nothing could be closer to the truth,” Smith said in the statement.

“There is absolutely no doubt in my mind that Aldi with its incredibly low overheads – they hardly employ any Australian staff – and its private ownership in Germany – they don’t have the high costs of public listing – will mean they will eventually send one or both of our Aussie shareholder-owned food retailers out of business.

“It’s clear that Woolworths and Coles will have to either replicate Aldi, that is, move to around 90 percent home-brand products and reduce their product selection from over 20,000 [lines] to just a few thousand, while sacking most of their Aussie employees, or they will be sent into bankruptcy.”

Smith says if this occurs, the ramifications for Australian jobs will be drastic. But he believes there is little that can be done, and it is the system, rather than individual companies, that are to blame.

“Nothing can happen,” he told SmartCompany.

“We’re in a destructive mode of extreme capitalism. We’re going to end up … [with a situation where] basically half the people won’t be employed.”

More international giants on the way

Smith is emphatic in his belief that it won’t be long before we see the arrival of more international grocers in Australia, saying fellow German discounter Lidl will “absolutely” expand to Australia.

“They have to keep growing,” he says. Smith believes Walmart will also eventually break into the Australian market and could even seek to take over Coles or Woolworths.

In the past week, speculation has again circulated that Amazon will bring its fresh food delivery to Australia as early as September next year.

“Food has been cheaper than it ever has been,” Smith says, claiming that as there is also a link between the declining price of food in Australia and public health problems, such as obesity.

“People are buying far more food,” he says.

Aldi responds

In response to Smith claim’s Aldi Australia told SmartCompany while it is proud of its “global heritage”, it is equally proud of establishing “an independent operation here in Australia”.

“Sales in Australia reached $5.8 billion in the year to 31st December 2014, a year-on-year increase by nearly $1 billion dollars,” an Aldi spokesperson told SmartCompany.

“All profits continue to be reinvested in our Australian operations, with the focus of these investments being directed towards store refurbishments and extensions, new store openings and produce buying centralisation.”

The retailer says it directly employs close to 10,000 people in its stores, distribution centres and corporate offices across Australia and works with more than 1000 suppliers, “the majority of whom are Australian and have enjoyed growth and success as we have expanded”. Among those suppliers is SPC Ardmona.

“Currently, 90% of Aldi’s everyday grocery range is private label, with the majority of these products sourced from Australian manufacturers,” the spokesperson says.

“We only source products from overseas when we can’t find the product, quality, efficiency or innovation we seek here in Australia.”

While low prices are a key tenet of the Aldi model, the retailer says it is committed to maintaining sustainable pricing levels.

“As a discount retailer, Aldi will not be beaten on price. However, as a business, we do not support the introduction of pricing levels that are unsustainable in the long term and may put pressure on the supply chain,” the spokesperson says.

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Dennis Casey
Dennis Casey
4 years ago

Dick Smith and others need to recognize that there are ways of competing against Aldi and its not through ever confusing merchandising, earning from the supplier through other income and through 20,000 lines in a store……..in the USA and Germany others compete with Aldi very well with a better grocery and deli range. Take Whole foods as an example.

Steve Palmer
Steve Palmer
4 years ago

How many times has my wife come home and told me,’they’re not stocking it anymore’! Someone needs to keep Coles and Safeway in check. The ACCC isn’t.

Roger Hawcroft
4 years ago

The broader picture here is that our politics and economics have reached such a low ebb that profit is placed before people, privatisation before ethical & moral considerations, and self-centred materialism before compassion and caring.

Service, loyalty, quality, and fairness are no longer the strong elements of successful business that they once were.

Today, consumerism is king. Most everyday people buy on price, with scant regard for the implications. The devastation of our dairy industry, our motor industry and our white-goods industry are just some examples.

Governments of both persuasions have done nothing about this but blithely followed the neoliberal economic model that has created a situation where increasing unearned wealth correlates with increased poverty and reduced income levels for the mass of the working population. One only has to contemplate the continuously widening gap between rich and poor over the last decades to see evidence of this. It is also significant that the rich increasingly become wealthier from unearned rather than earned income.

Our nation doesn’t have to operate in this way but it will do so as long as we have institutions such as the IPA exercising such leverage over right-wing, wealth orientated governements, and an electoral system that pays no attention to the attributes required for public service nor to demanding that, once elected, politicians are required to be honest, transparent and accountable.

Whether or not Aldi can put Woolworths or Coles out of business and whether or not that is a result of our wage rates compared to those overseas, is not the real issue but rather a symptom of a dysfunctional social and political system that has been hi-jacked by a wealthy elite who have no concern for the health of the nation or its people but only for the returns to shareholders.

As long as this situation remains, everyday people will continue to be squeezed while the wealthy 1% take continually bigger shares of the cake and what are effectively monopolies or oligopolies will dictate what most of us can access and at what cost.

The recent re-election of one of the worst governments in Australia’s history and the likely election of Donald Trump in the USA are examples of the ignorance of the average person and their manipulation by the wealth controlled media and senior politicians who take pride in telling outright lies with no fear of sanction.

We need to wake up and realise that the Aldi v Coles/Woolworths type of issue is a warning that we need to become politically more astute and morally less selfish if we are to ever have a nation in which we can take a pride and in which equality for all is a reality and not simply something given lip-service.

Cecil Benjamin
Cecil Benjamin
4 years ago

I think the article and especially the headline give more weight to the whinge by Dick Smith than seems to be reality. Looking at the comments from your interview with Aldi it appears that Smith is rather ‘off’ with his assessment of the shopping scene.

Rohan
Rohan
4 years ago

So Dick Smith is at war with all the suppliers. He was booted out of Coles and Woolies so he had a whinge about how terrible they were. Zero chance of ever recovering that market.

Now he can’t get into Aldi and he deflects the fact that it’s his business model that’s the issue and he’s too set in his ways to adapt. He’s calling this “Extreme Catpialism”. This is ironic considering when he started DSE, his model was to import cheap electronics manufactured in Asia. This killed off the local electronics manufacturing sector. It no longer exists.

Dick, they’ve just adopted your original business model.

Build a bridge, get over it.