ne post any after inflation growth as they contend with international competitors expanding in the Australian market. Woolworths opted to chase growth by developing a greenfields home improvement venture in what it identified as a fragmented hardware market, notwithstanding Bunnings Warehouse was a dominant player. The Woolworths venture, which has taken close to two years to unravel and quit, was as much an issue of poor execution in the store rollout program, product ranging and marketing. Wesfarmers critics are arguing overreach by Bunnings with its acquisition of the Homebase chain in the UK, which was a struggling number two in the British retail hardware market. Two very different strategies by the two big Australian retailers but both driven by the need to create future growth opportunities rather than attempt to fend off international competitors attacking their food and discount chains. Wesfarmers and Woolworths have both already seen Aldi, the German discount supermarket chain, and Costco, the American hypermart stores trim their growth and singe bottom-line earnings. Tough enough but their core businesses are facing more international competition with the Amazon online behemoth and TJ Maxx expanding in Australia and Germany’s Kaufland hypermarket chain now actively seeking locations for stores. The Schwarz Group has provided an initial $43 million to its local subsidiary, Kaufland Australia, and has registered trademarks and bought a prime retail site in Adelaide that is expected to launch the German chain’s first Australian store. The Schwarz Group is owned and controlled by Dieter Schwarz and has more than 1200 Kaufland hypermarkets in Europe, half of which are in Germany. The group also owns and operates Handelshof cash and carry outlets with a range of 80,000 products and the Lidl discount supermarket chain with more than 10,000 stores across 28 countries in Europe and the United States. The Schwarz Group, which is the fourth largest global retailer, has been seriously surveying the Australian market for more than four years, registering its trademarks and prospecting retail sites. Aldi, which entered the Australian market in 2001 and has built a market share of around 12.5 percent is the 7th largest retailer globally. Lidl has been expected to announce its entry into Australia alongside its German discount supermarket rival for more than two years but, strategically, The Schwarz Group  seems to believe the best opportunity in this market is initially with the Kaufland hypermarket format. The Kaufland stores are more akin to Costco stores with a range of more than 60,000 grocery and general merchandise lines. Hypermarket format to test Aussie depth Australia’s only home grown hypermarket experience was with Super Kmarts which were developed but subsequently abandoned by Coles Myer. Costco has opened nine destination stores across Australia since it launched in 2009 and has damaged market share, sales and profitability growth in the supermarket and discount department store sector. Costco is generating profits on annual sales of more than $1.6 billion and, while Kmart is posting solid revenue and earnings gains, Target and Big W are fighting for life and Coles, Woolworths and Metcash are all sacrificing margins and profitability to defend market share. The Schwarz Group has acquired the prominent former Le Cornu site in Forestville for $25 million for what is expected to be the first Kaufland hypermarket in Australia. The German retailer plans to build a 20,000sqm store on the site which is a bigger footprint than Costco. The decision to launch the brand in South Australia was, of course, based on the availability of the site itself but also the fact the location is more accessible for a destination store in Adelaide’s suburbs than in Sydney, Melbourne and Brisbane. Adelaide gives Kaufland the opportunity to test its concept and finetune the Australian offer in the same way Costco tested its business model with an initial site on the fringe of Melbourne’s central business district before rolling out more locations. Adelaide is also a market where its German rival, Aldi, is less entrenched and where independent supermarkets have a solid market share to target. Like Aldi, the privately-owned Schwarz Group doesn’t is somewhat publicity shy and doesn’t give much away on its future plans. The Kaufland website indicates the company has “an ambitious Australian investment and development program” but the company has not revealed if a parallel launch of the sister brand Lidl in Australia is a live option or if the hypermarket brand will at this stage go it alone. Prime sites hard to come by While Kaufland poses a significant new threat to the Australian supermarket and discount department store brands, the German retailer’s entry to the market is not without its own risks. The Schwarz Group has deep pockets but it comes into a mature and, arguably, already over-stored market, notably trailing both its German rival Aldi and the American Costco chain. The logistics of starting up a new grocery or discount department store chain are costly with the business models of overseas retailers tested by relatively high operating costs in Australia, particularly for wages and rents. Both Woolworths venture into hardware with Masters Home improvement and Costco have demonstrated the challenge in finding well located sites for large footprint stores. Kaufland’s intent to enter the Australian market might well have been better placed if the company had moved on its plans last year and secured some of the better sites Woolworths developed or banked for its hardware venture. Nonetheless, Kaufland will have a major impact on the Australian grocery industry and on the mass merchandise discount department store sector which is already distressed. The launch of a second hypermarket concept will make the chances of survival for Target and Big W much harder and will also threaten the viability of many independent supermarkets throughout Australia. Kaufland and Costco will have direct impact on independent supermarkets but the compounding threat to them will be the measures taken by Coles and Woolworths to defend their market shares and financial metrics. Kaufland has advertised for key executives to lead ithyps Australian business and is putting together a team of five property developers to identify suitable sites for stores in Sydney, Melbourne, Brisbane and Adelaide. The size of the stores will make the task of finding sites difficult after Masters Home Improvement secured so many locations but the greater challenge, as both Masters and Costco have found is in the planning process that can take more than two years to progress. Kaufland may have an opportunity to negotiate deals on some of the former Masters Home Improvement sites that have completed or are part way through the planning process. Home Consortium acquired 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites in a $525 million deal struck last year but only finalised this month. The privately owned Home Consortium has been reconfiguring the existing sites that were trading to accommodate big box brands but Kaufland may be able to secure some sites that would enable a an earlier initial store rollout than would be possible for new greenfield locations.