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SALES & MARKETING FROM PAGE 57 or years, the Australian supermarket sector had two primary players, but by 2018 ALDI had opened its 500th store in this country and snatched a serious slice of the action. Faced with ALDI’s lower prices, special buys and strong private label offering, Coles and Woolworths found themselves in unfamiliar territory. To fight the lean, precocious and rapidly growing newcomer, both Coles and Woolworths chose to reduce their prices in an attempt to hold onto their market share. While this may have slowed the loss of customers to ALDI, it led to lower profit margins, and market share stayed below the levels both had previously enjoyed. With ALDI’s low-cost business model, consistently low-priced product range, and ‘good different’, marketing message, Coles and Woolworths were limited in their ability to achieve margin growth. As neither is structured to compete with a low-cost-base competitor, both have deployed alternative strategies to move away from direct competition and focus on differentiation. The first sign of the changing landscape was the decline in the use of both Coles’ ‘down down’, and Woolworths’ ‘cheap cheap’ mantras, along with a steady increase in the proportion of premium own-brand labels on their shelves. Then, in late August, Coles announced its radical and exciting strategy based around three different store formats, each customised based on the consumer demographic served. There’s no doubt that Australian supermarkets are evolving into a diverse, sophisticated and customer centric sector, and we explore this evolution here. We also examine the marketing strategies being used, with industry experts suggesting the best way to partner with retailers, suppliers and wholesalers with a view to piggybacking on the current market moves. What are the options? In its 2019 report, ‘Competition and profit margins in the retail trade sector’, the Reserve Bank of Australia reported net profit margins had declined for both food and non-food retailers due to heightened competition in the sector. “Firms are seeking to offset the 58 RETAIL WORLD SEP, 2020 decline in margins through measures such as vertically integrating supply chains and adjusting product mixes,” the report said. Today, these are exactly the marketing measures we’re seeing, each consistent with the Ansoff Matrix marketing model taught in business schools: Market penetration Increasing sales of an existing product in an existing market by penetrating the market further, usually by promoting the product heavily or reducing prices. Coles and Woolworths initially tried market penetration to compete against ALDI. Market development Selling existing products to new markets, such as targeting a wider catchment area or launching an online sales channel. Supermarket chains can open stores in new locations to develop their market. Product development Introducing new products to existing markets – a common strategy with supermarkets and their suppliers. It can be new sizes or ranges, such as the private label products currently being introduced in many supermarkets. Unrelated products such as ALDI’s weekly special buys are also a product development strategy Product development is a popular strategy for smaller supermarkets as it can help develop a loyal customer base and differentiate with a unique value proposition. Diversification Entering new markets with new products that can be related or unrelated to a company’s existing offering. A diversification strategy might be used to gain control of the supply chain whereby a supermarket builds its own distribution centres or acquires transport companies to increase control and independence. Alternatively, a supermarket offering fresh sushi to order is adding a fresh international food range (new product) and targeting sit-down diners (new market). Play to win After persisting with a price reduction strategy that didn’t improve market penetration, and limited by its already comprehensive physical and online footprint, the supermarket sector needed to find new ways to differentiate – and it has. Today, supermarkets are focused on implementing a product development strategy. So, with range and product innovation in mind, this a good time for Australian suppliers to be pitching their new products and brands to category managers undertaking category and range reviews that will decide the future product offering. It may sound easy, but supermarkets need more than just new products. They need the right new products, and there’s little room for mistakes. Australian market research specialist TO PAGE 60