The changing landscape of Australia’s supermarkets

CBRE
​Sydney, 21 June 2015 – Over the next five years, the Australian supermarket landscape is set to evolve to accommodate the entry and aggressive expansion of offshore discount grocery retailers, a new CBRE Viewpoint report has revealed.
The traditional dominance of Coles and Woolworths, which held a market share of roughly 75% at its peak, is now being challenged by the entry of discounter supermarkets Aldi and Costco.
Over the past 15 years, Aldi has rolled out more than 360 stores nationally, contributing to 10% of total market share, and has plans to open a further 150 stores over the next five years, with a strong focus on Western and South Australia. Similarly, Costco has also expanded with seven warehouses nationally since its entry into Australia in 2009.
In total, Australia has seen 60-70 supermarkets open each year in the past 15 years, with a large proportion of these situated in the eastern states.
CBRE Senior Research Manager, Danny Lee, said discount supermarket retailers would lead the roll out of supermarkets across Australia, which is predicted to remain steady in the coming years.
“While increased competition from discount retailers benefits consumers in the form of cost savings, more supermarkets may dilute income streams and reduce market value for stores.”
The rapid increase of new stores brings into question the number of supermarkets that the Australian market can absorb before it reaches saturation point.
“The number of supermarkets relative to the population size of the U.K. and U.S. is a useful comparative benchmark to determine an appropriate level of supermarkets in Australia, given these markets have experienced similar intensity of competition from discount supermarket retailers over the past two decades,” Mr Lee said.
At 16.7 stores per 100,000 people in the UK and 11.7 stores per 100,000 people in the U.S., Australia, at a ratio of 10, appears to be relatively understocked. CBRE Research predicts Australia can accommodate a supply of 40 stores per year over the next five years before reaching the same store provision (in per capita terms) to the U.S. supermarket sector.
One area of the supermarket sector that is earmarked for expansion is within CBDs, due to increasing residential conversions and higher productivity rates.
CBRE Head of Retail Brokerage Leasing Australia, Leif Olson said supermarket supply should increase in CBD areas, as their smaller store sizes allow for higher productivity than those in shopping centres.
In 2014, productivity rates for more niche CBD supermarkets were 32% higher than regional and sub-regional shopping centres, and 37% higher than neighbourhood centres.
The increased presence of supermarkets in CBDs will further be supported by the significant supply of residential apartments in Australia’s major CBDs over the next five years.
“Increased residential occupancy in CBDs, particularly in Sydney and Melbourne, has driven growing demand from grocery retailers for CBD space and has led to a rise in smaller concept stores for food and beverage grocery operators, including IGA.”
“Across the country we have seen the rise of a number of leading convenience store brands including Ezymart and City Convenience taking space on prime high pedestrian strips,” Mr Olson said.
With only approximately eight supermarkets per 100,000 people, WA and SA are well below the national average of supermarket provision and are also posed to accommodate more retailers in the coming years.
“It is unsurprising with the relatively low store provision in SA and WA that discount retailers such as Aldi are targeting this region for expansion,” Mr Lee said.
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