Woolworths and Wesfarmers-owned Coles are facing increased competition from smaller Australian and international rivals attempting to undercut their way into Australia's $120 billion food and liquor industry.
The five main players in the Australian retail food industry have vastly different approaches. In terms of size, Aldi's 305 stores (March figure) are believed to generate in excess of $5 billion, Costco generated $612 million in 2012/13, while Woolworths reported sales of $58 billion and Coles $36 billion in the 2012/13 financial year. IGA sales data couldn't be found as they are private companies, however Metcash (ASX: MTS) supplies IGA stores and reported revenue of $13 billion in 2012/13.
Therefore, as a rough estimate it can be assumed that Aldi, Costco and IGA account for between 15% and 20% of the Australian food and liquor market.
In 2014 analysts and market commentators believe that further pressure will be applied. Costco has received $110 million from its US parent company for an expansion into Adelaide and Brisbane in 2014, while Aldi is part-way through investing up to $2 billion in 115 new stores in Adelaide and Perth in the coming years.
The impact of Aldi and Costco on Woolworths and Coles cannot be underestimated. While estimating the revenue or margin impact is difficult, recent reactive strategy changes demonstrate the impact of competition.
Aldi's big-margin private label brands have forced a rethink about stocking only big-name brands by Woolworths and Coles, while Costco's $60 annual fee creates a sticky custom base unlikely to shop elsewhere.
