Aldi momentum slowing, UBS says

AUSTRALIA’S love affair with Aldi may be waning as a resurgent Woolworths finds its mojo and IGA’s decline accelerates.

Are we over Aldi? Picture: Claudia Baxter

AUSTRALIA’S love affair with Aldi may be waning as a resurgent Woolworths finds its mojo and IGA’s decline accelerates.

That’s according to a national survey of supermarket shoppers by investment bank UBS, which found Aldi’s focus on its expansion into South Australia and Western Australia was eating into its momentum in the east coast markets.

“The magnitude of the slowdown in Aldi, evidenced by the broadbased fall in customer perception and drop in planned ­future visitation also surprised,” UBS analyst Ben Gilbert wrote.

“The rate at which new main shoppers increased halved in 2017, which suggests Aldi is finding it increasingly hard to gain new main shoppers from competitors. We believe winning a greater share of main shoppers will be key to Aldi seeing share gains re-accelerate, combined with the rollout of its new formats (greater fresh focus) down the east coast.”

The survey of nearly 1100 shoppers, conducted in February, found Woolworths’ turnaround was well under way with improved traffic, spend and customer perception, but there was still a lot of work to do, with Coles still the clear leader.

“We were surprised by the extent to which Woolworths still trails Coles in main shopper penetration, which we estimate represents a 150 basis point market share opportunity over time,” Mr Gilbert wrote.

At its half-year results in February, Woolworths revealed it had overtaken Coles in the crucial comparable sales growth metric for the first time in more than seven years in the second quarter, with sales increasing 3.1 per cent compared with Coles’ 0.9 per cent.

Last week, Woolworths chief executive Brad Banducci warned that spiralling energy costs were like “trying to outrun a bear” and that consumers would soon be paying more for groceries as a result, as it quietly raised meat prices.

The UBS survey also had more bad news for IGA owner Metcash. “The rate of decline in IGA is accelerating faster than we thought,” the report said. “We see IGA as structurally challenged. While price positioning and differentiation aids in stemming share loss, IGA’s medium-long term outlook, in our view, is weak.”

The report, which compared the results with the same survey a year earlier, said there were “signs of a more rational market” starting to emerge in Australia’s $105 billion grocery market.

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