Coles and Woolworths may be breathing a sigh of relief today as German discounter Kaufland has announced plans to withdraw from the Australian market, just months after it began construction on its first stores and distribution centre.
The company made the announcement on Wednesday afternoon after what it said was “careful and thorough consideration”.
Kaufland’s 200 Australian employees were informed of the decision on Wednesday, with the company saying it planned to concentrate on its European core markets for “the foreseeable future”.
“This was not an easy decision for us. We always felt welcome in Australia,” Frank Schumann, acting CEO of Kaufland International, said in a statement. “We would like to thank our employees and we apologise for the disruption this decision will cause.”
Schumann thanked government and business partners for their support with the planned entry to Australia and said the decision does not in any way reflect the efforts of local employees or management.
“In Europe, we see a great deal of growth potential. We will actively shape the consolidation of the European retail sector, thus further reinforcing our leading position,” he added.
Employees have been assured that they will receive “generous packages including all entitlements”.
Kaufland is owned by the Schawrz Group, the fourth largest retailer in the world, and currently operates in Germany, Poland, the Czech Republic, Romania, Slovakia, Bulgaria, Croatia, and the Republic of Moldova.
Schumann has been leading the charge at the discount giant since the sudden resignation of Kaufland boss Patrick Kaudewitz in April 2019. The CEO of sister company Lidl also stepped down unexpectedly at the same time.
The German retailer began construction of its first Australian hypermarkets in September 2019 with the Prospect, South Australia, and Dandenong, Victoria, sites intended to act as test stores for the Australian expansion.
The retail giant had also commenced construction of a $255 million distribution centre in Mickleham, Victoria. The 117,000sqm facility was set to be one of the largest in Australia with 130 loading docks and the latest technologies in automation, sustainability and efficiency.
The future of the existing Australian investments, which includes more than 22 sites across South Australia, Victoria and Queensland, will be discussed in the coming days.
Retail expert and Queensland University of Technology professor Gary Mortimer suspects that Kaufland’s sudden exit may be due to supply challenges in the Australian market.
“I haven’t encountered any global business that enters a market, recruits 200 staff, commits to over 22 sites and engages with state governments, only to pull out at the last minute,” Mortimer told Inside Retail.
“I suspect some of the challenges of the food and grocery sector emerged over the last two years, particularly issues around access to supply. Since 2017/18 Coles and Woolworths have shifted towards longer term supply contracts. And of course we can’t discount the impact of drought and bushfire.”
He highlighted the impact Kaufland’s exit will have on the FMCG and retail community.
“It’s not just the job losses but potentially any supply contracts with farmers dairy producers, livestock owners and of course landlords,” he said.
The retailer had already locked in 14 sites in Victoria alone.
Mortimer suspects Coles and Woolworths will be eyeing up those vacant sites “as long as they don’t cannibalise existing stores sales”, and said there may also be an opportunity for Foodland.
Mortimer poured cold water on the prospect of sister company Lidl entering the Australian market in the future.
“I doubt we will see Schwarz Group enter the Australian market anytime soon,” he said.
This story first appeared on sister site, Inside FMCG.