Why ALDI’s Rise And Rise Is Bad News For Agencies

Why ALDI’s Rise And Rise Is Bad News For Agencies

A new report has shown that ALDI’s rise in Australia will continue to squeeze the margins of the big two – Coles and Woolies – having a flow-on effect to ad spends, not just for the grocers but their suppliers too.

John Bastick
Posted by John Bastick

The report out today by ratings agency Moody’s says ALDI’s aggressive expansion in Australia has come at the expense of independent grocers and the big two’s duopoly is under serious threat.

The grocery business is worth $88 billion in Australia and the German budget retailer is clearly keen on taking a bigger slice of the action. ALDI reportedly enjoyed three times the growth of its Australian competitors in 2014 and the report predicted the budget grocer would take $250 million of business from each of its competitors – the big two and independents – by 2020.

Moody’s, using overseas comparisons where ALDI had gained a significant foothold, said Coles and Woolies would have to expect “market share and margins to come under pressure”.

In good news for shoppers, the report said any war between the three would result in cheaper prices, but in bad news for agencies, the report believed Coles and Woolies marketing strategy would increasingly be around building new stores to protect their respective patches while heavily discounting prices.

One industry boss who recently spoke to B&T anonymously said the squeeze on margins was already having an adverse effect on ad spends across all FMCG clients.

“It’s bad for all the suppliers and therefore all the vertically integrated suppliers that supply to the suppliers and it’s fucking our industry and it’s going to screw a lot of brands and businesses,” he moaned.

“Coles like to see themselves as the consumer’s fighter, fighting for low prices and that is coming at a cost of squeezing its suppliers and driving the entire profit and margin out of a lot of companies. Woolies has followed suit and it’s proven successful for customers.

“But the reality is Aldi’s business model, with its unbranded product, allows them to provide even cheaper products again. I think the top two are being beaten at their own game and the only winner here is probably Aldi,” he said

BMF – ALDI’s agency in Australia – was contacted for comment for this story.