Last week, Woolworths has announced that it will be divesting Endeavour Drinks alongside the ALH Group within half a year after successfully merging the two businesses. Now called Endeavour Group, it has been measured to be the largest combined segment that spans both the drinks and hospitality sectors. Woolworths is expected to continue holding an 84% stake in the business during the second half of the year, but will eventually just hold a minority stake after demerging. The decision was said to be for the sake of simplifying and streamlining Woolworths’ core grocery business and it was certainly a good move as far as its shareholders see. However, retail analysts and thought leaders are also noticing that the grocery giant is actually exhibiting a familiar pattern of behaviour. “We already had the demerger of Coles from Wesfarmers. Now, Woolworths’ streamlining its operations in a likewise manner,“ said Phil Chapman, director of retailer lease consulting firm Lease1. “It is clear that the Big 2 are preparing for the new wave of competition from foreign giant Kaufland. Retailers who rely on supermarket traffic need to be aware that the pressure is building.” Kaufland is part of the fourth largest grocery conglomerate in the world and made its move into the Australian market back in March earlier this year. Industry analysts have observed that its arrival has prompted immediate response from the country’s famed Big 2 in the form of ramped up efforts to streamline their respective businesses. These include simplifying their organisational structure and preparing for more digitisation across several areas of their company. And without a doubt, this may extend to retailers who position themselves close to the Big 2’s many giant supermarkets. Kaufland’s inevitable clash may require them to either seek new ways to depend on getting foot traffic outside with less dependence on grocers or reposition themselves to gain from Kaufland’s arrival.
Woolworths has increased its lead as Australia’s top grocery retailer, boosting its share of Australia’s total grocery market to 34% in 2018, up 1.4ppts from a year ago, according to Roy Morgan’s latest survey data contained within the Supermarket & Fresh Food Currency Report. While Woolworths increased its market share, the newly independent Coles now has a share of 27.6% of the total grocery market, down 1.6ppts on a year ago. German supermarket Aldi has had a good year in 2018, growing its market share to 11.4%, up 0.5ppts from a year ago. The other winners over the past year were Other Supermarkets outside the ‘big four’ such as 2018 Roy Morgan Supermarket of the Year Award winner Foodland, Foodworks and other supermarkets that increased their share of the total grocery market to 9.1% (up 1.2ppts), while IGA’s grocery share was down 0.4ppts to 7.1%.
Woolworths dominance is built on strong leads in key fresh food categories with the Sydney-headquartered retailer holding the largest market share in dollar terms for fresh meat, fresh deli, fresh bread and fresh fruit and vegetables ahead of Coles, Aldi and IGA supermarkets. Over the last year Woolworths has grown its market share in dollar terms across all four fresh food sub-categories and increased its lead over nearest rival Coles. The two brands currently dominate Australia’s fresh food markets holding over 50% of each of the fresh food markets. The December Supermarket & Fresh Food Currency Report is compiled from data collected as part of Roy Morgan’s Single Source survey, which involves more than 50,000 in-home, face-to-face interviews each year, including more than 12,000 detailed surveys of grocery and fresh food buying behaviour. Roy Morgan CEO Michele Levine said the impressive performance of Woolworths over the last year has Australia’s leading grocery retailer in a strong position to deal with the entry of German ‘hypermarket’ Kaufland into Australia’s $100 billion+ grocery market. “Australia’s leading supermarket chain Woolworths has increased its lead in the increasingly competitive grocery market in 2018, now capturing over a third of Australia’s total grocery spending in 2018 – up 1.4ppts to 34% from a year ago. “The successful year for Woolworths has been built upon strong performances across the four key categories of fresh food. Woolworths has grown its market share in dollar terms for fresh meat, fresh deli, fresh bread and also fresh fruit and vegetables, and is the market leader in all four categories ahead of main rival Coles. “The demerger of Coles Group from industrial conglomerate Wesfarmers in the December quarter of 2018 means Australia’s second largest supermarket chain now has the opportunity to refocus on its core business ahead of the imminent arrival of German retailer Kaufland. “Kaufland has already bought six industrial sites in Melbourne at which it plans to open its successful ‘hypermarkets’ over the next two years before rolling out stores Australia-wide following in the footsteps of fellow German retailer Aldi. Aldi also had a good year in 2018 and grew its share of the total grocery market by 0.5ppts to a new high of 11.4%. “In addition to Kaufland, the Australian grocery market is also anticipating a rollout of the ‘Amazon Fresh’ brand in the near future after the American Internet giant launched a food and grocery segment (although not yet fresh food) in the December quarter 2018. “The increasingly competitive $100 billion+ grocery market in Australia means it is more important than ever for companies operating in the grocery and fresh food sector to track precisely where their customers, and future customers, live, work and shop,” Ms Levine said.
Wodonga-based transport company, Ron Finemore Transport (RFT) has been awarded the Woolworths Refrigerated Meat Co Melbourne – Sydney – Melbourne looping service contract for the next three years. RFT said in a statement that the freight task aligns with its continued investment in its driver and operational skill sets, market leading technology platforms, advanced temperature control safety features and its desire to increase its refrigeration footprint. “RFT’s ability to provide live temperature GPS tracking data and set point temperature alert messaging configurations were highly valued by the Woolworths team, as is our proven ability within the NDC Melbourne – Sydney Linehaul shuttle contracts,” the company added. “RFT’s continued investment in Blue Tree IT platforms enables our business to lead the market in real time location and temperature monitoring of product ranges. “This new contract allows the opportunity for professional refrigeration drivers to join our RFT team to safely optimise our performance in this new business opportunity. It will also be important to continue to service the existing Woolworths contracts safely and reliably as well as deliver on the requirements of this new contract. “Our performance, reputation and capability to retain and win work is determined by our continued ability to provide safe and reliable service and delivery to promise.” The contract will commence on 16 April 2018, with four single 26-pallet refrigeration vehicles operating daily with an extra vehicle for Thursday service. RFT reportedly moves to B-double 36-pallet refrigeration vehicles in September/October 2018.
IRI predicts private labels will continue to grow as retailers tap into key consumer trends and create more premium-tier products that create shopper intrigue and engagement. IRI’s latest Point of View Report has revealed that private labels accounted for 18.1% of all Australian FMCG dollar sales in the 52 weeks to 21 May 2017 and that its growth has outpaced national brands. Private labels’ dollar growth of 3.9% during this period amounted to an additional $662 million in sales, compared to just 2.2% growth for national brands. IRI’s channel insights manager Daniel Bone said: “Private label has reached an important pivot point in Australia as supermarkets refine their strategies to respond to elevated consumer expectations and shifting market dynamics. Retailers are making changes in their private label ranging strategies, which is driven by a need to counter Aldi’s private label share gains. But there is also the prospect of intensifying private label competition from international retailers and those operating in adjacent channels.” Aldi’s current double-digit dollar growth in Australia and the share gains of discounters worldwide proves that private label is critical to a retailer’s value image and, by implication, overall performance. More than three-quarters of Aldi sales currently derive from private label products, versus less than a quarter in the supermarket majors. The affinity Aldi shoppers have for the retailer’s private label range underpins why two-thirds of Australian households now shop with the discounter, according to IRI’s research. The private label price advantage remains pronounced The price gap between private label and national brands remains significant across Packaged Grocery, Petrol & Convenience (P&C), Liquor and OTC Healthcare channels. Private label products are, on average:
44% cheaper in Packaged Grocery
28% cheaper in Petrol & Convenience
54% cheaper in Liquor
16% cheaper in OTC Healthcare
IRI’s research revealed that almost three-quarters of Australian shoppers always compare price before choosing brands. With wage growth at a record low and household debt surging to record highs, IRI expects the private label price advantage will place further downward pressure on ranging and margins for national brands for the foreseeable future. Private label performance varies across channels Private label performance is still relatively underdeveloped in Australia, especially in comparison to Western European markets such as the UK where almost 50% of sales are private label. Locally, IRI’s report shows that Packaged Grocery and Petrol & Convenience are the only channels where private label accounted for a double-digit share of total dollar sales. Packaged Grocery (+4.1%) and Petrol & Convenience (+11.8%) also recorded the fastest annual dollar growth in 2016-17. Packaged Grocery stood out, with 93% of all private label dollar growth derived from this channel. However, the double-digit growth of private label items sold through Petrol & Convenience stores was eight times faster than branded. The growing significance of the low-price, high-volume self-serve Hot Drinks category has been one of the main drivers of this. Specialised ranges represent the next wave of growth IRI predicts the next wave of private label growth will be from range diversification and premiumisation. In identifying high-performing private label products in Australia and overseas, IRI foresees four key themes that will accelerate private label gains:
Natural & Organic: A focus on natural, organic and fresh.
Free-From: Catering to more specific dietary requirements.
Ethics & Purpose: Aligning with consumers’ values, and passions.
Upscale & Celebrity: A higher level of quality and creativity.
“Going forward, we expect more specialised and sophisticated private label innovation to emerge as a source of inspiration for Australian shoppers and to show that ranged products are truly unique. It will be especially important in the Grocery channel where retailers will need to inspire more food curious and healthy minded Australian shoppers,” Mr Bone said.
Figures published in the 26th edition of the quarterly Australian Food and Grocery Council (AFGC) CHEP Retail Index indicate signs of a modest recovery in retail turnover growth in Australia as 2017 progresses. This follows a sustained period of softening growth over 18 months that has reflected uncertainty in Australian and global economies. The Index, which uses transactional data from CHEP pallet movements to provide a lead indicator of Australian Bureau of Statistics retail trade data, predicts year-on-year growth in Australian retail turnover of 4.6% for the month of June 2017 and 3.6% year-on-year for the June quarter – which is up from a year-on-year rise of 2.6% to March 2017. This is projected to continue with year-on-year growth figures for the months of August at 4.2% and September at 4.1% respectively. Despite a persistent degree of consumer caution and a competitive retail environment, Australia’s economic outlook over the coming 12 months is characterised by modest improvement, being boosted by factors such as a lift in global trade, China’s demand for commodities, inbound tourism as a result of strong economic growth in Asia, and growth in Australian household wealth. Australian Food and Grocery Council chief executive officer Ms Tanya Barden said: “After a period of relatively subdued retail trade, it is encouraging to see signs of some positive momentum. We have seen food retail spending, in particular, pick up and fill some gaps from weaker non-food retailing, with catered food driving most recent improvements. Household goods have been the best performer for non-food retailing.” President of CHEP Asia Pacific Phillip Austin said: “The reliability and efficiency of the supply chain continues to be a major factor in the success of Australia’s retail sector. Retail supply chains are already evolving to be more effective and sustainable in the face of increasing competition, emerging technologies and ever-changing consumer needs. This may accelerate as firms look to capitalise on the stronger momentum forecast by the Index.”