Arrival of supermarket discount giant Aldi set to drive a new grocery price war, warns analyst

RENATO CASTELLO
APRIL 18, 2015
SUNDAY MAIL

Walkerville IGA store manager Toby Lee at the Walkerville Tce store which closed its doors after 50 years of trade, citing competition from the neighbouring Woolworths. Picture: DAVE CRONIN
CONSUMERS will profit from a looming supermarket price war but the aggressive discounting could come at the risk of independent retailers and suppliers, a global investment analyst has warned.
UBS says Australia’s battle in the aisles is heading in a “new direction” away from a “marketing war” to a “price war” driven by the arrival of discount supermarket chain Aldi.
Woolworths is investing $500 million of cost savings into food and grocery prices and improving services to match Coles which has slashed prices on “everyday” items such as sugar and milk in a bid to lure consumers.
IGA/Metcash, which operates a number of independent supermarkets under the IGA and Foodland brand in South Australia, is throwing $40m a year to match the supermarket giants.
But UBS says the only winner of the looming battle will be consumers as retailers see their margins fall, while suppliers will be under pressure to provide produce for less.
“Over the last 10 years, competition has been limited to marketing and not price wars,” the report released last month says.
“The competitive landscape is moving in a new direction. Historically WW (Woolworths) and Coles haveexisted in a comfortable duopoly, with MTS/IGA following on price. Aldi now with
critical mass, is changing the behaviour of shoppers and the strategy of the major chains.
“The main loser from increased competition and discounting is MTS (lower margins, higher costs) … MTS (Metcash) needs to step-up investment to remain relevant.
“Coles and Woolworths continue to rollout space and invest heavily in value, putting pressure on independent retailers. We do not expect this to change.”
German discount chain Aldi intends on opening 11 supermarkets in Adelaide predominantly in the northern and southern suburbs.
Planning Minister John Rau announced during the week an overhaul of retail zoning regulations that would lift restrictions on where large supermarket chains can open.
According to ABS data released last June, 42 per cent of South Australian food retailing businesses operating in 2010 had closed four years later.
The vulnerability of small retailers was underlined earlier this month when Walkerville IGA on Walkerville Tce closed its doors after 50 years of trade, blaming the impact of the neighbouring Woolworths which opened two years ago.
Walkerville IGA manager Toby Lee said the South Australian-owned store was losing between $32,000 and $35,000 a month before it shut with the loss of 20 casual jobs.
He said the store had asked for rental relief from the landlord to try and buy time to refocus the supermarket towards gourmet produce and fruit and vegetables.
“The problem with that is you need to have finances behind you to do that; supermarkets don’t operate on huge net margins,” Mr Lee said.
He said there must be more publicity about the value of SA-owned supermarkets, their support of local jobs and suppliers as well as their support of the local community through sponsorships.
“The whole push to sell everything for the same prices that we were 10 years ago is unsustainable because it’s going to keep hurting suppliers and producers for cheaper prices,” he said.
He said the Federal Government must follow the lead of the US and Europe and cap the market share of any supermarket retailer.
Traditional corner shops also face increasing pressure from the modernisation of convenience stores led by the likes of South Australia’s On the Run franchise, according to Australian Association of Convenience Stores chief executive Jeff Rogut.
“There’s still a place for the grocer, butcher and baker but the corner store, that’s still got its windows plastered in phone-card discount posters, they haven’t moved with the times of the modern convenience store,” he said.
“On the Run continue to innovate … a lot of smaller ones, had they invested in their business and continued to change they may not have lost customers that they had.”
Here’s how one couple is breaking the chain
By James Hetherington
FOR more than 160 years, a corner store of some description has existed at the site where Vanio and Kathy Priori today run the Athelstone Deli.
The deli has been in Mr Priori’s family since 1963 when his grandfather opened the shop on Gorge Rd — making him a third-generation shop owner.

COMPETITIVE: Vanio and Kathy Priori, owners of the Athelstone Deli. Picture: STEPHEN LAFF
COMPETITIVE: Vanio and Kathy Priori, owners of the Athelstone Deli. Picture: STEPHEN LAFFER
Mr Priori believes the success of the business can be attributed to good, old-fashioned customer service. It might be a cliche, but it’s also true. “We talk to our customers, we get to know them on a first-name basis,” he said. “Think about the last time you went into a department store and I bet no one came to greet you — that’s just common sense but that has just gone out the door.
“You notice when you walk into the big supermarket chains that no one wants to be there. You look at them — the check-out chicks and the box boys are dying to get out of the place. It isn’t exactly very welcoming.”
Mr Priori believes it’s this customer service and generations of loyal customers, many from the strong Italian community that have helped the shop survive despite the presence of four supermarkets and two On the Run fuel outlets within 1500m of the deli’s door.
“We see kids grow up. People will come in for years with their little kids and before you know it they’re (those children are) turning 21. We’re definitely ingrained in the community,” Mr Priori said.
He said to survive, corner shops had to continue to invest in their stores and offer products that consumers wanted.
“Some people just lose focus a bit and aren’t willing to invest. Their stores get old and tired — and before you know it, they’re beyond saving,” Mr Priori said.
But he welcomed competition, even from the supermarkets. “We still get people from the big chains coming in to check our prices; we don’t get upset about it, we know it’s part of the game,” he said. “People think big chains’ prices are the best — they’re not. I’ve always got the lowest prices because I don’t have any overheads.”
Keep it fresh and they will come
By Josephine Lim
INDEPENDENT stores must innovate and work together to outdo supermarkets, says Goodwood Fresh owner Manuel Paul.
Mr Paul, whose fruit and vegetable store is among a group of independent shops on Goodwood Rd, said that together they could offer an edge against the giants.

TOP QUALITY: Pia O’Meadhra putting fruit and vegetables on display at Goodwood Fresh. Pic
TOP QUALITY: Pia O’Meadhra putting fruit and vegetables on display at Goodwood Fresh. Picture: TOM HUNTLEY
“You get a range of fruit and veg, bakery and butcher on this strip,” he said.
“What small businesses have to do is not compete
in prices, but diversify.”
The 30-year-old shop went online three years ago to give customers the option of getting goods delivered
to their door.
“Customers want convenience,” Mr Paul said. “It will be good if the whole strip is online. We find
ways of making products affordable to customers, like giving different options of the certain product.”
Mr Paul said he was not against his customers shopping elsewhere.
“I can get feedback on what products customers want me to be getting in,” he said. “I can source a product that is not readily available, such as getting a variety of apples for cooking.”
He said his prices were competitive when compared to the supermarkets.
The store is on the same strip as Foodland, with Woolworths and Coles 2km and 4km away respectively.
The 49-year-old owner prides himself on having dealt directly with growers “for generations”.
“Because we know the product, we can guarantee where it’s from,” he said.
Neighbouring French-inspired bakery Boulangerie 113 also set itself apart by delivering premium products supermarkets were unable to put on their shelves.
“The minute we branch out, we lose quality, we lose the image of uniqueness,” manager Bianca Harvey said.
Nothing like an old-style meat’n’greet
By Hannibal Rossi
CORO Continental Meats can’t sell its meat for next to nothing — but customers are still turning up in droves to buy quality local produce from the Coromandel Valley institution.
And talking to a friendly face at the counter here is the polar opposite of meandering around a soulless supermarket aisle.

TRAY BIEN: Shop owner David Benham with customer Sarah Strivens-Coupe. Picture: BIANCA DE
TRAY BIEN: Shop owner David Benham with customer Sarah Strivens-Coupe. Picture: BIANCA DE MARCHI
Along with its strong ties to the local community, that’s one of the main drawcards, explains owner David Benham. “We’re getting busier and busier each week. You have to have a point of difference to succeed, such as sourcing meats and other foods from local farmers like we do,’’ he said. “We just try to make everything ourselves and only use Adelaide Hills products.
“All our beef comes from Woodside and our lambs come from the Mount Torrens/Palmer area.”
The shop also sells bread from the Belair Bakery and locally produced honey and olive oil. Mr Benham said: “Customers want to know where the honey (from Flagstaff Hill) and the olive oil (Coromandel Valley) come from. They want local produce.’’ So while the big supermarkets might beat Mr Benham on price, their meat often comes pre-packed from interstate. “One in 60 customers will turn their backs on us because of price — but we are not really competing with supermarkets,’’ he said. “We can’t sell meat for $3 a kg less than we pay for it, like them.’’
Those old-fashioned business practices have helped the shop stand the test of time. Mr Benham — who has worked most of his life in the meat industry, and mostly in the Hills — bought the business last November and is only the third owner.
“The shop’s always had a good reputation and I’ve just tried to build on that,” he said.
It specialises in making its own hams and bacon, and has a smallgoods maker in-store. Mr Benham said customers who’d served meat they’d bought on a Sunday from a supermarket told him “even their kids notice the difference’’.
Over Christmas, he sold a whopping 400-500 hams. The area itself was very community minded “so it’s natural for us to support things like a homeless centre nearby, the RSL club, local footy club and other causes’’, Mr Benham said, “and they support us in turn’’.