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Profitable Aldi winning the price war

Business

Aldi’s growth is expected to rob Woolworths of more than $450 million in sales a year over the next three years.

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A report by analysts UBS says Aldi is the most profitable major supermarket chain in Australia and is in the best position to win a price war.

It also says Aldi is winning new shoppers at an accelerating rate, however it needs to improve shopper’s perception around its fresh offering to increase that rate.

Metcash remains most at risk from losing ground to Aldi but Woolworths will also lose more market share to Aldi, while Coles is not expected to take as big a hit, the report noted.

“Coles is doing the best job competing against Aldi, and we expect it to be least impacted over the next three years,” the report says.

It added that Woolworths appears to be losing to Aldi at “an accelerating rate” with even the independents, such as IGA, looking like they “have benefited from Woolworth’s issues.”

“We believe Aldi is winning sales from all retailers, driven by roll-out and a broadening customer base,” it said.

“That said, we believe Aldi’s like-for-like growth has slowed over the past 12 months, driven by Coles’ Every Day Value strategy.”

It said Coles was expected to lose sales at a rate of about $332 million a year to FY2019 to Aldi, while Woolworths was expected to lose $476 million of sales.

UBS estimates Aldi to have an 11 per cent share of the east cost grocery market with more than $7 billion in sales.

It expects the German discount retailer to reach $10.6 billion in sales by FY2019 and to have about 10 per cent share of the national grocery market by FY2020.

“Aldi is now the most profitable major supermarket chain in Australia, generating a profit before tax margin of about 5.2 per cent in 2013, and is, in our view best positioned to win a price war,” the report said.

AAP

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