OPINION: Aldi’s profit disclosure raises more questions

AldiOPINION: Aldi Australia has more than doubled its profits in the past five years after boosting its sales to more than $6 billion.

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The German discount supermarket chain has revealed, in a submission to a Senate tax inquiry, that its pre-tax earnings rose from $121 million to $261 million between 2010 and 2013.

Pre-tax profits are certain to have increased further in the past two years as the chain has continued an aggressive expansion program that has seen its share of the grocery market rise to around 13 per cent.

Aldi’s relentless growth has trimmed the market shares of both Woolworths and Coles, boosted by both new store openings and stronger same store sales growth than either of the major chains.

After developing a network of more than 370 stores in the eastern seaboard states, Aldi is now moving into South Australia and Western Australia under a $750 million expansion plan.

The retailer is also examining the potential of the New Zealand market, a move flagged late last year with a management restructure that promoted Tom Daunt from group MD for Aldi Australia to CEO of Aldi Australasia.

Daunt formally took up the new role in April, leaving Stefan Kopp as group MD for Aldi Australia.

Woolworths currently has around 950 supermarkets nationally and Coles around 770, compared with Aldi’s 375 stores.

The German retailer entered the Australian market in 2001 with an initial target of 100 stores nationally. But consumer support for the discount model and opportunities created by the demise of the Franklins chain have seen Aldi become more ambitious.

The chain’s development plans would see at least 200 more stores open in the eastern seaboard states, and more than 100 in South Australia and Western Australia.

Aldi is opening between 25 and 30 new stores each year and expects to have a chain of 20 outlets trading in Western Australia by December.

Sales growth for the chain has been significant in the past five years with Aldi’s annual revenues close to doubling in that period, stealing sales growth from Coles, Woolworths and independent supermarkets as well as mopping up a slice of the sales that previously went through Franklins’ cash registers.

Aldi opens up to Senate inquiry
Aldi’s submission to the Senate corporate tax avoidance inquiry into tax follows criticism by Wesfarmers CEO, Richard Goyder, about the tax paid by global retailers trading in Australia.

As a privately owned company, Aldi is renowned for its reserve in discussing corporate information, including its financial information. However, the retailer has been more forthcoming in recent years as it vies for consumers, supplier opportunities and, most importantly, new retail sites.

According to the Senate submission, Aldi sales were $3.52 billion in 2011, $4.16 billion in 2012 and $5 billion in 2013. The chain has revealed in recent weeks that current annual sales are more than $6 billion.

Aldi’s growth has clipped the market share of the major chains and independents, but has also impacted on margins as the German discounter’s rivals reduce prices and restructure promotional and advertising programs.

While Aldi has its own full-shop customers, the chain is also gaining support from customers of its supermarket rivals who visit Aldi stores for specials and top up grocery shopping, as well as bargain priced short-term general merchandise offers.

Aldi’s customer counts are understood to be around 4.2 million a month, compared with 8.8 million for Coles and 9.5 million for Woolworths, according to Roy Morgan research. These figures underpin a market share for the discount German chain of at least 11 per cent – and almost certainly closer to 13 per cent based on the recent sales information.

The emergence of Aldi as a significant competitor, the entry of Costco (which has sales of close to $900 million from a handful of stores) to the Australian market, and rumours of the entry of another German discounter, Lidl, to the Australian market is creating headaches for the established players but relief for competition regulators.

ACCC monitors ‘creeping’ acquisitions
Independent supermarkets in Western Australia and South Australia are strong and have had time to prepare defensive strategies for Aldi’s entry into their markets. However, Aldi and Costco appear certain to savage IGA and Foodland market shares.

Ironically, Aldi’s sales and earning revelations of recent weeks might actually aid Coles in its bid to acquire eight Supabarn stores in the ACT and NSW as well as a development site.

The Australian Competition and Consumer Commission has sought submissions on the proposed acquisition of the stores at Civic, Wanniassa, Kaleen and Crace in the ACT, as well as Five Dock, Sutherland, Sans Souci and Annandale in NSW.

The ACCC has been concerned about what it describes as creeping acquisitions that markedly reduce competition. But Aldi is now a key factor in the trading dynamic of individual markets.

While acquisitions of independents by the chains has slowed to a trickle, the market share losses of Woolworths and Coles and the competitive pressure of Aldi and Costco on independents is likely to see more buyouts of IGA, FoodWorks and Foodland stores proposed.

Metcash, the grocery wholesaler supporting the independent supermarkets, has taken investments in key independent chains and has acquired individual stores to retain them as customers. But the wholesaler’s current financial outlook is likely to limit further buyouts, creating more opportunities for the chains, including potentially Aldi, or Lidl, if it does launch in Australia.

The Senate Inquiry is expected to call Aldi executives as witnesses following the submission that has been lodged. Senator Sam Dastyari, who is chairing the current inquiry, claims the Aldi written submission, “raises more questions than it answers”.


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