Australia’s grocery retail landscape is shifting. As we move deeper into the first quarter of 2015, we reflect on the events of 2014 and anticipate what lies ahead for both retailers and suppliers. New retailers and channels are challenging the status quo and price competition is set to remain a hot topic…
Foreign retail expansion
International retailers are increasingly seeing Australia as an attractive growth market, with new entrants and rapid expansion strategies for those already present.
In 2014, ALDI laid out plans to expand its coverage into South Australia and Western Australia, while also continuing to increase its network and sales densities on the east coast, with its market share hitting 11 per cent.
7-Eleven entered WA, while Costco doubled its store network, increasing revenues 43.5 per cent and opening its first depots in Queensland and South Australia.
Although ALDI is not expected to open its first stores in WA and SA until 2016, distribution sites have been identified and expansion plans will become increasingly apparent in 2015. The growth of both Costco and ALDI in 2014 clearly shows the mounting appetite of shoppers for new value-orientated grocery channels. The rise of foreign grocery retailers is reshaping the retail landscape and shopper behaviour. It provides more choice for shoppers, with established retailers upping their game, and also facilitates new growth channels for suppliers.
In December 2014, Woolworths opened a new small-format convenience store on Elizabeth Street in the Sydney CBD and has also signed up for two further locations on Swanston and Flinders Streets in central Melbourne.
Woolworths has experimented with a few urban stores in recent years, but until now has not yet rolled out the format in a significant way. The stand-alone convenience market has been left to retailers such as 7-Eleven, IGA Express, EzyMart and City Convenience.
We have flagged the urban convenience channel for some time as an area that has been waiting to be exploited, and it seems 2015 is the year that Woolworths will begin to roll out more stores in this channel. Tailoring the size of the store, as well as the range and services, to suit the location will be paramount to its success.
Australia’s cities are prime locations for smaller, ‘proximity’ stores. However, for convenience to prove successful, it will require new thinking, new products and new skills, so that stores target multiple shopping missions, as well as deliver the right balance of quality and price.
Online fulfilment solutions
Both Woolworths and Coles increased online grocery sales by more than 40 per cent in FY14. In 2015, expect continued growth as retailers introduce broader ‘clicks-and-bricks’ strategies.
Woolworths has opened its first dark store in Sydney and will next consider new ones in Melbourne and Brisbane. However, we think 2015 will be a game-changer in terms of click and collect, with Coles and Woolworths both rapidly rolling out the service to new locations.
New solutions that improve capacity, ranges, delivery standards and service will help online to grow further in 2015.
Woolworths has a head start over its main rival, with more than 200 click-and-collect locations compared with Coles’ 80. But watch out for greater experimentation with click-and-collect locations, as well as more cross-fascia pick-up points as retailers look to deliver a more seamless experience.
As retailers build confidence among shoppers that online grocery retailing offers a convenient solution that fits around busy lifestyles, more Australians than ever will buy their groceries online in 2015. New operating models will require new thinking from suppliers and involve supply chains becoming more agile in the future.
Price wars continue
With subdued consumer confidence set to remain for at least the first half of 2015, price battles will continue to be a key part of the market.
To help counter the growth of ALDI, we expect Coles’ and Woolworths’ activity to focus on everyday low pricing on key items.
Also, watch out for more in terms of price matching from IGA, as its Price Match promise gets rolled out further and the independent sector fights back.
Aussie shoppers are savvier than ever in terms of hunting out value, and retailers will need to work even harder in the year ahead to convince them they are getting great value for money.
Look out for a stronger emphasis on shopper-focused and permanent price cuts rather than short-term promotions in 2015.
Price competition will get even fiercer, so retailers will increasingly look for solutions that differentiate their offer. This will provide opportunities for suppliers to collaborate with their retail partners and, hopefully, strengthen their relationships.
Today, three-quarters of Australians own a smartphone and almost half have access to a tablet, according to the 2014 Telstra Smartphone and Tablet Index.
Throughout last year, we saw mobile engagement reach new levels, with more mobile-enabled platforms launched and apps with new functionality. Examples included Woolworths’ ‘Track My Order’ GPS feature and Coles’ ‘My Specials’ personalised offers.
Coles introduced its first mobile wallet in July and we also saw Woolworths experimenting with iBeacon technology at its Double Bay store in Sydney.
Mobile devices provide a great platform through which to engage with shoppers, but also to target them in a very personal way. With the increasing utilisation of shopper data by Australia’s grocery retailers, it will be interesting to see how this trend develops, with both commercial and non-commercial benefits for both retailers and suppliers to engage with shoppers via these devices.
With a growing focus on delivering shopper-focused insight and solutions, digital platforms provide a great place for retailers and suppliers to experiment. Keeping close to the latest digital innovations from around the world will help gain commercial advantage.
Asia-Pacific Region Manager
Nick heads up IGD’s Asia Pacific research team and is its main analyst covering Australia. He regularly travels to the market, visiting stores and engaging with retailers and manufacturers. He brings seven years of experience working for Tesco to IGD. For more information, email email@example.com.
IGD is a food and grocery research membership organisation, with 800 members worldwide across the whole food supply chain. It is a leading source of insight covering retail, supply chain, shopper and people development. IGD’s research team also identifies best practice across the world through its global innovation tracker. For more information, visit www.igd.com or contact firstname.lastname@example.org.