Aldi is ramping up its domination plan for Australia

Photo: Daniel LeAl-Olivas/AFP/Getty Images

Global grocery giant Aldi will open 25 new stores a year on the east coast and spend at least half a billion dollars smartening up its ageing fleet, amid warnings it must innovate to arrest slowing sales growth and survive the supermarket price war.

Analysts suggest Aldi will spend as much as $3 million a store to refresh its ageing outlets in Sydney, Melbourne and Brisbane in addition to launching 25 new stores a year in its updated format.

The new layout features a larger fresh component as well as an expanded health range as Aldi pushes to secure a bigger proportion of the grocery spend in Australia.

Citi analyst Bryan Raymond said Aldi’s investment in new stores and refreshing its network was all about capturing a larger share of customers’ overall grocery spend.

“Aldi wants to be the core shop for consumers,” Mr Raymond said, leaving Coles and Woolworths with just the “top-up shop”.

​Cut-price groceries and Aldi’s weekly promotions or special buys are no longer reeling in new customers, according to broker UBS.

Analyst Ben Gilbert said sharper pricing at Coles and Woolworths had narrowed the new customer pipeline for Aldi and weighed on the effectiveness of its quirky, weekly promotions.

“Following years of strong share gains, the rate of gains at Aldi has slowed,” Mr Gilbert said.

“Aldi is finding it increasingly hard to gain new main shoppers from competitors.

“We believe the key to gaining further share is contingent on Aldi’s store rollout … and east coast refurbishments to improve the fresh offer.”

Aldi has already tested its new format through its $700 million new store rollout program in Western Australia and South Australia, which will ultimately support about 120 stores in these two territories.

The chain has not revealed the cost of its planned store upgrades or the centralisation of its fruit and vegetable buying, which will be completed by the middle of this year.

A spokesperson for Aldi said it was the discount grocer’s job to “evolve” to meet the needs of tomorrow’s shoppers.

The narrowing in the price difference between Aldi and the supermarket majors, Coles and Woolworths is the reason for the slowdown in the discount grocer’s sales growth, according to Merrill Lynch Bank of America analyst David Errington.

“Aldi’s growth has already started to wane with headline growth figures being supported by new store openings in South Australia and Western Australia and we think it will stabilise at industry growth levels,” Mr Errington said.

A slowing in Aldi’s growth rate is also reported by suppliers, who suggest the chain is now going after higher value shoppers on the east coast.

One grocery supplier said Aldi was adept at tailoring its offer to individual markets and in Australia it seemed to be moving closer to a traditional supermarket model.

Aldi realised some time ago that there wasn’t much growth on the east coast without improvements in its fresh and liquor offering, according to retail analyst Steve Kulmar.

“To date they have done well because they have focused on house-branded staple goods and leveraged their existing supply chain,” Mr Kulmar said.

“They’ve now been in this market for 16 years and they are moving beyond that traditional model.”​

This article first appeared at Business Day. See the original article here.

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