Australian Retail Market

10 October 2016

The intended purpose of this report is to outline the nature of the Australian retail market, specifically the retail food sector. This report will then discuss the role of market segmentation and how it has resulted in the emergence of new retail channels available to consumers. The emergence of ALDI as a new retail channel will be the focal point of the report along with a brief overview of other new-coming organizations such as Costco.

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Through the use of current journal articles, books, internet sites and government publications, this report will outline the benefits of the new retail channels available to consumers, especially in regards to saving on common expenses. This report will also discuss the possible room for development and expansion for other retailers within Australia, and the ensuing implications these would have on the supermarket sector. The Australian retail market is currently categorized into certain sectors.

The sector that will be discussed in this report will be the Australian retail food sector, and more specifically the supermarket subsector. Woolworths and Coles dominate this sector with 78 percent share of the market and their dominance within the sector is evident as they are contributing to 50 to 70 percent of grocery and food sales (AFGC 2011). Furthermore, the Australian Food and Grocery Council (2011 p. 13) outlines the fact that the majority shares of the two major retailers of Woolworths and Coles have also resulted in Australia’s food retail market to be “one of the most concentrated in the world”. . Nature of Australian consumer market The Australian consumer market is also segmented into categories. These three categories include premium, convenience and discount buyers (Armstrong et al. 2012 p. 190). Different retailers depending on their targeted market will attempt to adequately service one these categories.

Target marketing and Market segmentation These market segments are categorized depending on a few variables, the main variables include, Geographic, demographic, psychographic and behavioral (Armstrong et al. 012 p. 188). The aims of market segmentation, to put broadly, are to identify certain groups of consumers and then allocate them into segments depending on their similarities and common buying trends (Dibb & Lyndon 1996). The concept of market segmentation is essential for organizations to understand in order to maintain a “competitive advantage that will enable them to fend off potential new entrants” (Armstrong et al. 2012 p. 191). 2. 2 Examples of Market Segmentation Dibb and Lyndon (1996, p. ) illustrate the key benefits of the effective use of market segmentation, these include: “full utilization of competitive edges, development of more appropriate marketing programmes and to become more market-focused”. One example of this would be Woolworths as in recent times; Woolworths have portrayed themselves as “Australia’s Fresh Food People” (Woolworths 2013). It is evident that Woolworths have developed more appropriate marketing campaigns in order to appeal to their consumers and have a clear sense of direction.

Another example of effective market segmentation is through Bi-Lo, which is owned by Coles but targets a different market segment. Due to the fact that Bi-Lo targets discount consumers they have employed their ‘Why Pay More? ’ marketing campaigns (Bonn 2006, p. 7). 3. ALDI and their emergence into the market One of the main retailers within the retail market is ALDI and their goals are simple and concise; their philosophy is that “all people, wherever they live, should have the opportunity to buy everyday groceries of the highest quality at the lowest possible price” (ALDI 2013).

ALDI was able to transition into the Australian retail market relatively smoothly as they understood their position in regards to their consumers, and also had the ability to service their respective markets’ (discount buyers) needs (Armstrong et al. 2012). 3. 1 Effects of improper market segmentation Prior to ALDI’s emergence, Franklins was also attempting to satisfy the needs of the lower spectrum of the market. However, when Franklins unsuccessfully attempted to reconfigure their position in regards to their consumers, they lost their hold on the market (Armstrong et al. 012). It is also outlined by Armstrong et al (2012) that the inexperience of Franklins in regards to market segmentation resulted in the loss of existing consumers as well as future consumers, and ultimately resulted in an uncontested response to ALDI. 4. ALDI’s Private label strategy Smith (2006, p. 39) implies that due to the nature of the supermarket industry, stores that offer a larger range of products are often more efficient than those that offer fewer items.

ALDI however tests this notion, as they stock roughly 700 private label products – which is less than other retailers who stock 25000 to 30000 products (Bonn 2006, p. 1), yet they are still able to secure their market position and contend with rival retailers (Armstrong et al. 2012) 4. 1 Perception of Private Label Within the last 20-30 years, private label brands were initially targeted towards the lower classes; therefore people’s adoptions of private label brands were not very common (Kumar & Steenkamp 2007, p. 12).

However, in recent decades private label products have become more favorable to Australian consumers. This is evident in 2010 Nielson Global Survey (The Nielsen Company 2010) as the total percentage of sales of private label products have increased from 15 percent to 25 percent. Furthermore, the 2011 Nielsen Global Private Label Report (The Nielsen Company 2011), indicates that 46 percent of consumers believe private label products are a suitable replacement for name brands and 42 percent believe that private label brands are just as good as name brands. 5.

Results of ALDI’s emergence ALDI’s emergence has resulted in a dynamic impact on the grocery sector as they have provoked competitive responses from other market retailers that have never been registered prior to ALDI’s emergence (ACCC 2008, p. 17). ALDI’s emergence has also resulted in a greater push by Coles, who have stated their future desire to raise their private label shares from 13 percent to 30 percent (Kumar & Steenkamp 2007, p. 5). 5. 1 Benefits for ALDI consumers The main benefit of ALDI’s emergence within the retail sector is in regards to price.

Considering that an average household spends 12 to 14% of its after tax income on groceries and household goods (ACCC 2008 p. 13), it is clear why certain consumers would value cheaper grocery prices at ALDI. A standard grocery basket at ALDI is potentially able to save consumers nearly 25 percent compared to consumers of other retailers (Choice 2009) 5. 2 Benefits of ALDI for other consumers ALDI is also able to assist consumers at other retailers as the two major retailers of Woolworths and Coles are reducing prices for certain stores that are geographically located within 1km of an ALDI Store (Choice 2009).

This effect indicates the target market strategy of Woolworths and Coles as they only provide these reductions to benefit certain consumers within a geographic boundary and not their entire market segments. 6. Costco within Australia Costco first opened in Australia in 2009, and similarly to ALDI specializes in private label products, however on a much larger scale which is encompassed through their model of ‘Bigger is Better’ (Thomson 2009). . 1 Possible effects on market The Australian Food and Grocery Council (2011) also indicate that due to the highly concentrated nature of the Australian food retail sector, the emergence and expansion of ALDI and Costco are not expected to significantly affect the leading retailers dominance of the market, and instead it is predicted that their respective market shares will potentially increase from 78 percent to 85 percent.

Although certain studies argue that there will be no major effect upon retailers, other studies portrayed by Krieger (2011) have suggested that the emergence and future growth and expansion of Costco and ALDI, could result in significant implications on the supermarket sector as it could result in the downfall of branded products as the larger retailers compete by introducing more of their own private label products. 7. Conclusion The heavily concentrated Australian retail food sector is under a phase of change and expansion due to the emergence of new market prospects, such as ALDI and Costco.

This phase of change is centralized upon the growth and future expansion of private label products and with that the growing sense of competition within the market. In order to maintain a hold on a market within a competitive industry it is imperative that organizations fully understand their market segments in order to maintain an advantage and perform to their strengths.

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