In 2000, total food retail sales in Australia and New Zealand were valued at US$ 26.7 billion. Worldwide, there are 15 retailers whose total 1999 sales exceed this number. Some of the largest of these may well be ready to expand their business into the southern hemisphere.
Elsevier Food International, Vol. 4, Number 2, May 2001
Pascal Kuipers

Until recently Australia was an unattractive market for the world's leading retailers, who were deterred by its geographic isolation, its relatively small population of 19 million people and its highly concentrated food retail market. The Australians felt they'd been rudely dragged into the global retail arena when the German hard discounter Aldi announced that it would enter the Australian market. Between Easter 1999, when the first anonymous recruitment advertisements were published in a Sydney newspaper (and Aldi was quickly identified as the name behind them) and January 25, 2001, when the first Aldi store finally opened, retailers and manufacturers Down Under vigorously debated the anticipated impact that Aldi would have on the Australian market and the possible strategies for fighting the price-aggressive Germans.
Situated 3,000 kilometres south east of Australia, New Zealand is even more geographically isolated. Two-thirds of its 3.8 million inhabitants live in one of its three largest cities: Auckland, Wellington and Christchurch. Global retailers have not yet reached New Zealand's shores and the market leader Foodstuffs (53 per cent market share) is a domestic player, but foreign retailers are also represented in Down Under's westernised market. New Zealand's runner up is the Progressive Group, owned by the Australian independent retailer Foodland, while the country’s third largest retailer Woolworths belongs to Hong Kong-based retailer Dairy Farm.

Invasion of global retailers
Global warning: Australia under threat, headlined the Australian supermarket news magazine Retail World in March last year. It quoted Reg Clairs, former managing director of Woolworths. Following Aldi's entry into the country, he anticipated an invasion of other global retailers, whose low cost operations and global sourcing facilities allow them to sell processed grocery items 20 to 30 per cent cheaper than the competitive prices that Australia had known up until that point.
"Countries with labour rates far below ours will become a source of supply ... leaving our supply base in tatters and our retailers stranded," Clairs warned. He pointed towards the French retailers Carrefour and Casino, UK retailer Tesco and the Dutch cash & carry company Makro, all of whom are already expanding in Asia, with Australia potentially only one step further.
Roger Corbett, who succeeded Reg Clairs as Woolworths' managing director, stressed one month later that his company would compete with Aldi much as it would with any other competitor. Woolworths was re-engineered and benchmarked internationally in a process called 'Project Refresh'. "We are now [judged] against world market performance indicators," Corbett stated. "We live in an open world and an open economy. And if our performance is not equal in terms of the efficiency of the operation for return on capital employed and all the other criteria ... then we must expect to be bought." The retailer recently launched five new own brands covering ten categories in order to level AJdi's own-label offer.
In July last year, Dennis Eck, CEO of the other large Australian retailer Coles Myer, pointed out that AJdi has to deal with laws that protect price levels and prohibit price dumping.
"We will be monitoring Aldi's prices very closely to make sure the prices are understandable based on their cost," he said. Coles entered a local price war in Sydney in early 2001, when Aldi's prices appeared to be 19 per cent cheaper that its own, leading to Coles matching Aldi's low price levels on a basket of 30 own-label items. In early February, Eck commented that price cuts were limited and that he did not expect an earnings disruption because of Aldi, due to Coles' strategy of retaining customers via premium private labels, generics and main stream brands. Coles is said to be working on 400 new private-label lines covering many categories.

Symbiosis stopped
According to the 2000 annual report published in last year's December edition of Retail Week, it's Australia's number three retailer Franklins who in fact created the opportunity for Aldi to start a discount operation Down Under. "There is now a yawning gap at the bottom of the market where price, and price alone, is the drawcard that has attracted Aldi," comments Retail Week. Franklins traditionally occupied the price segment of the Australian food retail market. Every local market that had a Franklins store, had a remarkable symbiosis with all kinds of fresh foods speciality stores. However, due to insufficient resources to cope with the extended trading hours that have been in operation since the mid-1990's, these small retailers were put out of business. Because it had to offer its customers a one-stop shopping assortment, Franklins was forced to move upmarket, and some five years ago began to add fresh foods to its assortment. This was a strategy that proved disastrous for Franklins' market share, which declined from 15.1 per cent at the end of 1995 to 12.5 per cent last year. Franklins' main USP - its reputation as the cheapest grocer in town - no longer proved to be the case, causing many customers to turn their backs on the retailer. With its roots as a discounter in mind, the Franklins management fears it will be more negatively impacted by Aldi than Woolworths and Coles have been. In an effort to limit the anticipated damage that Aldi could cause, Franklins decided to open an Aldi-lock-alike store in a Sydney suburb where it knew Aldi was also eyeing locations.
Parent company Dairy Farm (Hong Kong) intends to sell Franklins, but the competition authorities won't allow either Woolworths or Coles to buy it. Aldi - in a remarkable display of openness -made a public announcement that it was not interested in buying any Franklins stores. Despite the problem in finding retail locations in Australia, the German discounter sticks to its golden rule of organic growth. Ahold is rumoured to be interested but, when asked, denies any interest in the Australian market in general, and in Frank1ins' store base in particular.

Marauding multinationals
"Australian supermarket chains may defend against multinationals by expanding overseas themselves," said Anthony George in Retail World's November 2000 edition. Currently he works on Woolworths' Special Projects Team, and one of the strategies he suggests to those Australian retailers that want to defend their market shares against "marauding multinationals," as he puts it, is to attack by overseas expansion. He also recommends striving to achieve world-best practice so that domestic companies can compete at the level of the multinationals (which explains Project Refresh). He also suggests that greater efficiency could be gained by combining operations with those of other companies to lower costs, and by niche marketing (catering specifically to the needs that they and they alone know best: Aussie ones). World class management teams should be created by offering international expertise to Australian managers, and Australian (local) brands should be used to differentiate the assortment from that on offer from foreign retailers, who obviously don't understand the importance of such brands to local customers. Finally, global sourcing - which in George's view has resulted in focused procurement in lower wage economies than Australia's - will lead to bottom line cost efficiencies, and to lower prices for the consumer.
The latter proposal can hardly be as straightforward as it's made to sound, but clearly Woolworths' membership of WWRE and Coles' acquisition of a position in GNX are indications of this strategic option. Coles is especially active in B2B E-commerce: it is also a founding member of CorProcure, an Australian Internet purchasing exchange set up by 14 of Australia's largest companies.

New Zealand: one step further
For Aldi, busy establishing itself in Australia, a move into the New Zealand market is just one small step away. There are rumours that the company is investigating such a move, but so far there are no signs of it happening in the near future. Limited selection and discount stores recently endured harsh times and many stores had to close, including the US food retailer Cost U Less, which had tried to gain a foothold in this remote market. It lost NZ$ 13 million (US$ 5.95 million) in just six months after opening two stores that closed in June last year after a short but dramatic period of trading. The main reason for this disaster was the fact that Cost U Less failed to read the New Zealand market accurately. Customers did not recognise US brands and disliked purchasing food and grocery items in the bulk packs that the retailer offered. New Zealand trade magazine Grocer's Review reported in April 2000 a display of giant packs of potato crisps just days away from their best-by dates - no wonder Cost U Less lost NZ$ 1.1 million (US$ 0.5 million) a week while the two stores were trading.
New Zealand is focused on its neighbour Australia and both Coles Myer (although not in a food retailing capacity) and Foodland have set up shop in this market. So, too, has Hong Kong retailer Dairy Farm, which owns Woolworths New Zealand. It is, however, questionable whether Dairy Farm will stay in this region, as it intends to sell its share in the Australian retailer Franklins. There are rumours that, in the pending sell-off of Franklins, Dairy Farm might sell its New Zealand operation to Australian retailer Woolworths because of the synergy with the name.
Though global retailers have not yet reached the New Zealand market, globalisation strikes the market Down Under deep. In the last 12 months many multinational suppliers - and even some of New Zealand origin -concentrated their regional head offices abroad as part of their global strategy.
Many went to Australia and others went even further away. Procter & Gamble, for instance, moved to the Asian region and based itself in Singapore. Some manufacturers also closed their New Zealand-based manufacturing plants as well, thereby stretching the supply chain and leading to chronic out-of-stocks.
There has also been a dramatic reduction in national advertising and promotion of grocery brands. This diminishing local liaison and lack of quick decision-making frustrated New Zealand's three major retailers, who responded by using the opportunity to stimulate private label brands, thereby gaining market share and extending into previously unconsidered categories. From a current 12 to 13 per cent share all major retailers are now aiming for an own-brand share level of 23 to 24 per cent within the next two years.
But there is another side to the coin. New Zealand has a sophisticated grocery retail industry and a well-educated population. That's why several multinationals use this geographically remote market as a test market for the pre-release of new product ranges.

Australia
The night of June 30, 2000 was the busiest night ever in Australia's retail history. Millions of price tags had to be changed as, from Juty 1, the government was to begin levying a ten per cent tax (the GST) on most goods and services. This value-added taxation brought Australia in line with most of the western world. Australia's food retail market is highly concentrated, with the top three accounting for 82.4 per cent of total sales. Last year, these sales reached a value of A$ 40 billion
(US$ 23.3 bn). The two largest retailers have a combined market share of almost 70 per cent, and are 100 per cent Australian companies. Aldi will have a tough task winning consumers' hearts, as a recent survey by ACNielsen and the Australian Retailers' Association revealed that consumers want a large range of fresh foods as well as prepared meats, and that they want to shop quickly via fast-service lanes. Australians also prefer one-stop shopping over shopping in two stores. In 2000, Australians spent an average A$ 126 (US$ 73.40) a week in the supermarket.

New Zealand
New Zealand is even more geographically isolated, as it's situated 3,000 kilometres south east of Australia. It has 3.8 million inhabitants whose needs are catered for by 351 supermarkets accounting for about 80 per cent of food retail sales. These have an estimated value of NZ$ 8 billion (US$ 3.4 bn). According to a 1998 household survey, an average New Zealand family spends NZ$ 113.50 (US$ 61.00) a week on food. The leader has a 53 per cent share of the market and almost doubles in size the runner up (27 per cent). Unusually, the independent trade holds some 55 per cent of the market through Foodstuffs, a single co-operative driving three different sized banner groups (New World, Pak N Save, Four Square). This independent combination has proved to be successful - it increases its share every year, New Zealand also has 1,816 corner stores and 310 convenience stores, accounting for five per cent and 15 per cent of total food retail sales respectively. In recent years, supermarkets and convenience stores (mostly located near petrol stations) have diversified into ready-to-eat and hot takeaway foods.
At the moment, oil company Caltex is successfully developing a chain of stand-alone 24 hour convenience stores under the Star Mart banner, to complement its on-station stores.