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Aldi isn't worried about Amazon

Photo: Daniel LeAl-Olivas/AFP/Getty Images

Aldi Australia is generating sales growth of more than 10 per cent in 2017 as sales push through the $8 billion mark after a revamp of its strategy to devote more space to fresh foods.

Chief executive Tom Daunt has signalled there is still room for another 100 stores in its local network.

He said heavy price cutting by much larger rival Woolworths, which had invested $1 billion in cutting prices in the past 18 months to regain momentum against Coles, had had little impact on the Aldi business, which was making strong gains as its value approach was embraced by cash-strapped shoppers.

Mr Daunt also said the looming opening of a local distribution business by online giant Amazon would cause no problems for Aldi, which had a substantial general merchandise offering of clothing, outdoor products and tools in its stores with its “special buys”, along with its core supermarket range of 1500 grocery product lines.

“I think we’ll trade just as well with them here, as not,” Mr Daunt said. The arrival of rival German supermarket and general merchandise operator Kaufland, which last month acquired its first site in Australia for $25 million ahead of a local roll-out, would bring extra competition into Australia, which was welcome.

No change of course

Aldi’s strategy in Australia wouldn’t be changing course, although he acknowledged that, in the next few years, the company would be careful not to be too aggressive in opening new stores. Aldi was poised to open its 500th store in late November at Glenmore Park in outer Sydney after arriving in Australia in 2001.

“If you go too far then the proposition can get compromised,” he said.

Mr Daunt said there were no set numbers or a timetable about when Aldi might hit a ceiling of expansion in Australia, but it was likely to finish up at about 600 stores in total. Aldi wasn’t planning to enter Tasmania or the Northern Territory yet. “The answer is we’ll wait and see,” he said. The company had crunched the numbers on Tasmania but he pointed out it was small population and supply chain constraints made it harder to justify.

Mr Daunt said the sharper focus on fresh food had been a winner. The “Project Fresh” strategy, where fresh food was given more prominence and had been moved to the front of stores in a progressive revamp that would be completed by 2020, had been an important growth engine for Aldi’s sales in 2017.

“That’s certainly underpinning some of the growth,” he said.

The retailer had also benefited from store roll-outs in South Australia and Western Australia.

Aldi was generating “double-digit” sales growth. “We’ll be comfortably up over $8 billion,” Mr Daunt said of calendar 2017.

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Wedded to bricks and mortar

His confidence that Aldi would be largely immune from Amazon’s local distribution power when it started operating at full strength was based on limited overlap and the evidence from other countries in the northern hemisphere where the two operated in the same market.

Aldi was firmly wedded to a bricks and mortar store approach and offering the best value. “We don’t deliver, we don’t get distracted by online,” Mr Daunt said.

He said Aldi had cut the prices of 500 of its own products in the past 12 months and households were enthusiastically responding at a time when spending power was under pressure from rising electricity bills and low wage growth.

“What people are short of is cash,” he said. “Discretionary income is under pressure.”

He said research by Deloitte Access Economics for Aldi had shown that, in the past year, 25 per cent of people had changed the grocery outlet at which they most frequently shopped, and that value for money was the main driver of those decisions.

He said Australian shoppers were very discerning and, while they sought out low prices, the products also needed to be good value and high quality.

“Australians are not silly. Australians will not buy cheap crap.”

This article was originally published by the Australian Financial Review. Read the original here, or follow the AFR on Facebook.

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