The challenges Kaufland faced in Australia

German grocery giant Kaufland surprised everyone by abandoning its well-advanced plans to launch in Australia but retail experts say it had faced enormous challenges.

German retailer Kaufland planned to open more than 23 stores in Australia.

PERHAPS in the end it was all too hard.

German supermarket giant Kaufland’s decision to quit Australia after spending up to $500 million in preparation to start rolling out their hyper supermarkets next year caught everyone by surprise.

Kaufland statement that after “careful and thorough consideration” they have decided to undertake an “orderly withdrawal” from the Australian market to focus on its European operations is a typically enigmatic bookend to the company’s strange sojourn Down Under.

Over a three-year period they bought 23 supermarket sites in South Australia, Victoria, NSW and four in Queensland, started work on a distribution centre in Melbourne, signed up suppliers, engaged with State Governments and local councils and employed a 200-strong workforce.

Julia Kern was appointed Kaufland Australia Managing Director.

Yet over that time — unlike their German rival Aldi and the US-based Costco — Kaufland failed to engage with consumers and the media in any meaningful way about their plans.

As secretive as ever the end came as a shock to all those who were dealing with them and especially to their staff who had put their future in the company’s hands.

There are reports Kaufland, which is part of the giant Schwarz Group, was still hiring and engaging with developers and builders up until the announcement.

Professor Gary Mortimer from the QUT School of Business said it was shock.

“It’s extraordinarily strange to see a global company like this to go forward and engage with State Governments, purchase real estate, employ team members, engage with suppliers only to pull out at the last minute,” he said.

“Perhaps it sends a signal about the challenging Australian conditions — particularly in food and grocery.”

Regardless, the $110 billion Australian supermarket sector is a different beast that what it was when Kaufland announced it had arrived with its one-stop hypermarket model which would have been at least twice the size of a Coles or Woolworths, selling anything from groceries to electrical appliances.

“I think the Australian market’s shifted over that last three years since they initially ran their business model and they’ve looked at the ROI (return on investment) and expect some level of profit in five years,” Prof Mortimer said.

“Over that time there has been an increase in the costs of food, two years drought, the recent bushfires and that would have had an impact in the ROI estimates.

“I think also supply would have been challenging with Coles and Woolworths both locking suppliers on five and 10 years contracts, which is a shift away from the short contracts.”

Prof Mortimer speculated the “tyranny of distance” was also a factor with long supply lines potentially an issue.

Also, finding appropriate large sites has been difficult plus there has been opposition by local businesses and residents to the developments ensuring a more difficult planning process for their mega store concept.

Regardless, Kaufland will have to work through the ramifications of its departure with staff, suppliers and everyone else with a stake in their Australian operations.

While their potential competitors will be dancing in the aisles — especially Coles and Woolworths — it is the Australian consumer who misses out.

Prof Mortimer said Australians would have welcomed a Kaufland to the table.

“They’re conditioned to what a German discounter looks like with Aldi — private labels, low costs and a strong fresh food offer,” he said.

“Australian consumers would have welcomed the business.”