Aldi goes online to brew a new battle

Blair Speedy
June 22, 2013
The Australian

DISCOUNT supermarket chain Aldi is taking its assault on the dominant Coles and Woolworths to new heights, launching an online liquor store to serve the eastern states.

In an exclusive interview with The Weekend Australian, Aldi Australia managing director Tom Daunt said the move into online retailing on August 1 would be a world-first for the German-owned multinational and could be a precursor to a full-range internet sales offer.

“Every major liquor retailer in the Australian market has an online presence now, so we’re just joining in,” he said.
“This is an interesting litmus test for us because it’s the first time Aldi has participated in online retailing in any significant way internationally; we’re a progressive bunch down here.”

Aldi sells liquor in its 108 Victorian stores, and is steadily rolling it out through its 134 NSW and ACT stores, with about half already selling alcohol.

The packaged liquor market in Australia is worth about $45bn in sales, while the online wine market is worth about $220m a year, five percent of the total market.

The company is restricted from selling booze at any of its 69 Queensland stores, as that state restricts off-premises liquor licences to pub owners – the main reason for Coles and Woolworths owning portfolios of Queensland hotels, and a law that Aldi is lobbying the state government to repeal.

“Online liquor will enable us to access that market, and there are many customers on the eastern seaboard who don’t have an Aldi close by who would like to access our offer,” he said.

The present in-store range consists of fewer than 100 wines, beers and spirits, but the online site will offer at least double that amount, with a constantly changing roster of new products augmenting the portfolio – still well below the 7000-plus products on offer at Woolworths’ market-leading Dan Murphy’s website.

“Our existing liquor business is really popular with customers, and I expect that online will be equally popular, but how much will come from existing Aldi customers and how much from other shoppers we don’t know,” Mr Daunt said.

Like Aldi’s grocery range, its alcohol offering will be made up of about 95 per cent in-house brands, although the company prefers the term “exclusive brands”, saying it better reflects their quality position.

“The second largest selling nappy in Australia by volume is our Mamia nappy – some would call that home brand, but Mamia has enormous brand recognition,” he says.

Aldi will charge about $7 a case for delivery, subject to location, and sales will be restricted to the eastern states, where Aldi already has stores.

“But I expect that as we roll out our stores in South Australia and WA we will accompany that with liquor,” Mr Daunt said.

As revealed in The Australian in February, Aldi plans to spend more than $500 million to build two distribution centres in SA and Western Australia, where it plans to open up to 45 and 70 stores, respectively.

The ordering and delivery systems will be provided by third-party players, with Dropship Australia handling logistics and Playhouse Digital handling the transactional website.

“The whole supply chain is very different, you’re starting from scratch, so we’ve kept it external,” Mr Daunt said.
The website could be expanded to provide Aldi’s full product range, although this would present increased costs and logistical challenges as, unlike alcohol, groceries are often quite low in value compared with their weight and size, and may need to be kept refrigerated.

“We’re curious about that space, we wouldn’t be doing our jobs properly unless we kept an eye on it . . . but we’re a long way from deciding whether to participate on grocery,” Mr Daunt said.

Aldi has built a portfolio of 311 stores since opening its first site in Sydney’s west in January 2001, but its pace of growth has slowed since the peak of 2008 when it opened 37 new sites to 26 last year, with even fewer to open this year.

Mr Daunt attributed the slowdown to restrictive planning laws, which reduced the pool of sites available, as well as a glacial development approvals process.

“The single biggest impediment to any new retailer is planning; the availability of appropriately zoned land for retailing is low and is being outstripped by economic growth,” he said.

Aldi largely has been absent from the debate over supermarkets’ handling of suppliers, an issue being probed by the competition regulator over claims Coles and Woolworths have misused their power to demand unsustainably low prices.

The two supermarket groups are negotiating the terms of a code of conduct with the Australian Food and Grocery Council, which represents suppliers, that will govern how the two sides interact.

“We have just been invited to comment on the code and we’ve provided some minor feedback, but there’s nothing in the code that would change how we already do business,” Mr Daunt said.

But Aldi had not been invited to join a dispute resolution body being set up by Coles, Woolies and the Australian Competition & Consumer Commission that will seek to resolve issues between suppliers and the supermarkets before they attract attention from ACCC.

“But anything that levels out the playing field is a good thing, so to the extent that the code does that we support it,” Mr Daunt said.

He said Aldi had avoided regulatory scrutiny and political criticism despite its predominance of private-label products – with which suppliers say Coles and Woolworths threaten to replace their products unless they slash their prices – because its product range meant it could not make such threats.

Mr Daunt noted that Aldi was consistently rated by suppliers as the best supermarket to deal with as it sought to build long-term relationships and did not demand periodic rebates to fund promotional activity, a view echoed in the food manufacturing industry.

“I’d be surprised if there had been a single complaint about us to the ACCC,” he added. Mr Daunt said the best way to ensure competition in the supermarket sector was to lower the barriers to entry for new players such as Aldi and US big-box store Costco, which has one outlet in each of the Melbourne, Canberra and Sydney markets.

Coles and Woolworths consistently have pointed to Aldi and Costco as sources of competition when concerns are raised over their dominance of the supermarket sector, in which they have respective market shares of about 30 per cent and 35 per cent.

“The problem is not that Coles and Woolworths are so big, it’s that they haven’t been competing with enough tension in the past, and that’s changing with our growth, Costco’s arrival and Coles’ revival,” Mr Daunt said.