WHY ALDI IS WINNING FAVOUR AS CONSUMERS CHOOSE SAVINGS OVER LOYALTY

Australian grocery shoppers are becoming less loyal to channels and brands as the cost-of-living crisis sweeping the nation forces tough decisions for many families on what to buy and where. 

According to Neil Moody, GM for Australia and New Zealand at Focus Insights, this trend is driving more footfall to Aldi – a retailer broadly seen by consumers as a value-for-money proposition – and a higher uptake of discounted goods, promotional offers and private label brands.  

Moody has more than 25 years of experience in the FMCG industry across a variety of sales, analytic and commercial roles, working with manufacturers including Yakult and Kellogg. He worked for Nielsen for almost 15 years before recently taking the helm of Focus Insights’ Australasian business. 

Just as the world emerged from the pandemic and life began to return to normal, business and consumers alike have been plunged into a new challenge – soaring inflation, and a significant increase in the cost of living, which are shaping consumer behaviour in many ways. 

Moody says Focus Insights’ research is reflecting “real tension” for consumers as they manage the pressure of budgeting for essential products and their disposable income evaporates – especially those people with mortgages who are facing higher interest rates.

“When you’ve got an extra $1000 on the mortgage each month, buckling up a little bit comes into focus very quickly,” he explains. 

“There is a definite trade-off in what consumers are choosing to buy as they manage the pressure. Households are having to make some choices around what they spend on now.”

Post-pandemic, Aldi is regaining lost ground

Moody says Aldi is making ground against its major grocery rivals as consumers shop around for value. 

“Coming through Covid, Aldi didn’t do quite as well as retailers that had an online presence, but now the footfall into Aldi stores is really coming back. Most shoppers consider Aldi represents the best value in the market in real terms.”

That view is underpinned by the chain this month topping Canstar Blue’s supermarket ratings for the 11th year of the 13 it has been running. This year Aldi was the only supermarket in Australia to score a maximum of five stars for ‘value for money’, ‘freshness of produce’, ‘quality of private label products’ and ‘availability of deals/specials’. 

“As people become more squeezed, they will go a little bit further to try to find value. Aldi is not necessarily the first choice shop for everyone, but I expect more consumers will start doing their main shop at Aldi and shop there more frequently to better manage their budgets. 

“We are hearing anecdotally from clients that we work with – especially the ones who manufacture private label products and work with Aldi – that they’re seeing a shift across their categories,” Moody shared.

Given that about 90 per cent of the products Aldi sells in Australia bear the company’s own private-label brands, the grocer’s growth is eroding some consumer loyalty to name FMCG brands. 

The private label market in Australia has never really grown beyond 25 per cent of the country’s overall grocery market, which is lower than many overseas markets, especially through Europe. Moody says this is in part because brands are pretty affordable Down Under, and a prevalence of promotional buying makes them even more so. That, combined with a lingering perception among many consumers that there is a quality gap between branded and own-brand options, has held the category back until now, he explains.  

“I would expect that private labels will become more of a priority among certain shopper sets, especially those who are really financially stretched.”

He predicts they are more likely to make more private label purchases by increasingly shopping at Aldi stores rather than just through switching to private label products in Coles or Woolworths stores.

Moody says budget-driven shoppers are either “trading down or trading out” in categories that account for a large share of their overall grocery spend and definitely buying more on promotion. 

“Anecdotally, there’s also some discussion about whether people are dropping more expensive cuts of meat to manage their budgets, for example. Our latest  Grocery Outlook Report looking at the current consumer environment and shopping behaviour is due out next month so we’ll have more insights to share on these kinds of changes then.”

The ‘recession-proof’ category

Confectionery – for now at least – seems safe. “They say chocolate is recession-proof. There is a suggestion that people are indulging more at home and confectionery is considered an ‘affordable indulgence’ because the unit cost is relatively insignificant. So if you’re not going out as much, you’re more likely to treat yourself at home – a little like how liquor often gets an in-home rebound when the cost of living goes up because people stop going out and paying $20 for a cocktail.”

In recent months, there has been a lot of media coverage about sustainable purchasing decisions being an early victim of consumers cutting back on discretionary spending. But Moody says from his observations, there has always been a disparity between consumers talking about buying more sustainable options and actually doing so. 

“There is tension around whether people are willing to pay for it and around whose responsibility it is to provide a more sustainable food chain. I haven’t seen that tension go away during the past decade since it really started to become a factor. 

“There are some brands that represent really good differentiation and when it’s done credibly a certain proportion of consumers really respond to it. But while the majority of consumers talk about it being important, they don’t necessarily act the same way,” he continues. 

“I don’t see it going away – I’ve had a lot of discussions with companies where they say it is really important for us to be a more sustainable business, it’s part of our triple bottom line, and we’re doing a lot of ESG work. They are doing that because they see it as a way to make their business sustainable and be seen to be doing the right thing by the planet.”

“But I’m not sure from a consumer perspective that it’s necessarily the most important thing when it comes to what products they choose. You know, it still comes down to affordability, quality and availability being the primary drivers of choice. Along with some of those other more emotive factors – like it’s a brand I’m proud of, or I have a positive association with – sustainability is typically more secondary for most consumers. 

In challenging times, an opportunity?

With consumers changing their spending, does Moody see a category offering FMCG manufacturers an opportunity for growth? He suggests more of an occasion than a category:  “Affordable, healthy school and work lunch options is an area ripe for more innovation. People like variety and convenience – especially parents – but it doesn’t seem there are as many healthy and affordable mini-meal options for lunches as there are snacks in the market.”