Dick Smith has warned the impending entry of German supermarket giant Kaufland into the Australian market will worsen pressure on the supermarket sector and potentially drive local players out of business.
The outspoken entrepreneur believes Kaufland will “make a fortune” in Australia and before long will be one of the most profitable retailers Down Under.
“If it’s one cent cheaper, everyone will run to it,” he tells SmartCompany.
“They will be incredibly successful and they’ll take millions of dollars overseas.”
Kaufland, owned by the world’s fourth-largest retailer, Schwarz Group, is preparing to open its first store in Australia, after securing several sites in South Australia and Victoria earlier this year.
Its intentions are clear — last week the AFR reported Schwarz Group has injected another $60 million in capital into the local operation, citing ASIC records.
Its first “hypermarket” stores, which are essentially very large supermarkets, are slated to launch in Australia in financial year 2019.
The business already has more than 1,200 locations in Europe, generally in a 3,000-4,000 square metre format.
A Kaufland Australia spokesperson said it is committed to long-term investment in Australia.
“The recent equity increase is an additional sign of our long-term commitment to invest in sites and the construction of our stores, in line with our vision and commitment to provide greater choice for Australian consumers,” the spokesperson said.
Independents muster support to fight Melbourne expansion
There has been backlash over the expansion of Kaufland locally, with a group of independent supermarkets launching a “save our shops” campaign last week.
The group says it is opposing an attempt by Kaufland to appeal to the Andrews’ state government for permission to rezone land in five areas in Melbourne.
“Foreign-owned Kaufland is buying up industrial land throughout Melbourne’s suburbs in order to drop massive mega malls on communities without giving them a say,” the group said on its website.
“If they are allowed to do this, it will smash local businesses, drive up traffic congestion and ultimately hurt consumer choice.”
Kaufland is hiring a variety of senior managers to build out its talent stable in Australia, including area, warehouse, distribution and facility managers in Melbourne.
An ad for an area manager in Victoria posted last month revealed the business expects to develop a team of about 600 store members in the state initially.
More than 30 roles have been sought across the country, in what the business described last month as the “next phase” of its expansion.
Save Our Shops is seeking to put pressure on the government to deny Kaufland’s rezoning requests, with the support of the Master Grocers Association and an online petition which has 121 signatures.
Supermarket could generate $480 million in a few years
Morgan Stanley analysts published a report earlier this year which warned of the effect Kaufland’s expansion in Australia could have on local retailers.
It said the German giant could generate up to $480 million in Australian revenue by the 2020 financial year with just eight stores, cementing the rise of the discount supermarket model here, which was first established by Aldi.
The proliferation of discount supermarkets Down Under will likely have a sustained effect on the supermarket sector, the analysts said.
“As discounters gain share industry sales growth will remain low and prospects for considerable margin expansion are unlikely,” the analysts said.