Shoppers snap up Aldi’s weekly ‘special buys’

Blair Speedy
The Australian
April 18, 2012

THE poor consumer sentiment that is slashing returns for most discretionary retailers is a boon for discount supermarket chain Aldi, which is reporting a surge in demand for its weekly “special buys” that include everything from computers to underpants.

Aldi Australia chief executive Tom Daunt said the special buys — a constantly changing roster of general merchandise, electronics, clothing, household and leisure goods — were defying the spending downturn.

“Perhaps counter-intuitively, our special buys program has actually been increasing in success,” Mr Daunt said in an interview with The Australian.

“Consumers are unquestionably more conscious of the dollars they are spending — the national savings rate has gone from negative five years ago to more than 10 per cent — people are more conscious of value than ever before . . . retailers who don’t offer that are going to suffer.”

The Aldi concept largely does away with brand-name goods in favour of a limited range of products carrying the company’s own brands, allowing for smaller stores and prices that market surveys have shown to be 25-40 per cent lower than their larger competitors.

In addition to prompting Coles and Woolworths to expand and upgrade their private-label offerings, the Aldi model has proved a hit with Australian shoppers, with the company accounting for 7 per cent of the grocery market just 11 years after opening its first Australian store.

“We continue to grow in terms of store numbers and sales from existing stores, and the Australian customer’s acceptance of our business model is fantastic,” said Mr Daunt, a 14-year veteran of the company who was promoted from head of buying to succeed the group’s inaugural chief executive Michael Kloeters in 2009.

Aldi now has 277 stores in Victoria, NSW, Queensland and the ACT, and plans to open another 29 stores this calendar year.

However, Mr Daunt said Aldi had no plans to move beyond the eastern states — a prudent decision that allows the company to fractionalise the fixed costs of its five distribution centres over a larger store footprint.

The product range has also grown, from an initial offering of about 700 items to more than 1200 — a range that Mr Daunt says covers all product categories customers can find in full-line supermarkets but without the level of brand duplication.

“Customers want to visit a store where they can complete their full shop — convenience is becoming more and more important, and if you can’t supply all of a shopper’s needs you’ll only appeal to a narrow customer base,” he said. “But we don’t carry eight different fly sprays — we might have one or two.”

Aldi’s NSW supermarkets are set to add alcohol to their product range, a sector Aldi already services in Victoria, but remains locked out of in Queensland, where only pub owners are permitted to operate bottle shops.

“We would like to see the Queensland government change their view on licensing,” he said, adding that Aldi would not buy pubs just to secure liquor licences.

Despite what is frequently referred to as a price war between dominant supermarket chains Woolworths and Coles, Mr Daunt said that beyond a handful of products Aldi had not been required to drop its prices further to remain ahead of the competition. “We are indisputably the price leader in Australia; we have been for a decade and we will continue to be,” he said.

Like Woolworths, Aldi last year cut its prices to match Coles’s offers of $1 for a litre of milk and $1 for a loaf of bread. The price cuts have led to claims that suppliers are being forced to sell at unsustainably low prices, driving some manufacturers offshore.

Mr Daunt said Aldi had not pressured suppliers to slash prices, and despite the strong Australian dollar cutting the cost of imported products the company continued to source the majority of its stock from local suppliers — a move that allowed closer quality control.

“With a higher Australian dollar there’s a temptation to switch supply, but where we see an opportunity to develop a longer-term relationship with a local supplier we will always pursue Australian-made product . . . it’s a smarter strategy than flipping supply in and out based on fluctuations in currency.”