Customers flocking to Aldi for value, fresh food appeal going stale: Morgan Stanley

ALDI is stealing customers from Coles and Woolworths as the fresh food people lose their one key advantage, according to a new report.

ALDI is stealing customers as they increasingly prioritise value over fresh food, but Coles is still beating Woolworths, according to a new report.

Morgan Stanley’s latest Consumer Supermarket Survey of more than 1500 shoppers has found Aldi and Costco are now reaching the mainstream “after years of sitting on the periphery”.

Importantly, both discounters are popular with younger people and large households, pointing to big market share gains in the future.

According to the report, as Aldi and Costco move into the mainstream they appear to be having an impact on what consumers look for in a supermarket.

“Both ‘value for money’ and ‘good promotions’ increased in importance for consumers [compared with 2013],” write Morgan Stanley’s Thomas Kierath and Monique Rooney.

“[The] main area where full line supermarkets can differentiate, fresh food, has reduced in importance according to consumers.”

In 2013, 39 per cent of respondents ranked “offers good value for money” as either the most or second most important factor. This increased to 44 per cent in 2015. Similarly, “offers good promotions or discounts” increased from 21 per cent to 22 per cent.

“Quality of fresh foods” (30 per cent) and “range of fresh foods” (20 per cent) were the two most important factors when selecting a supermarket in 2013. This fell to 27 per cent and 19 per cent respectively in 2015.

“Potentially this is an alarming development for the full line supermarkets as this is one of the only areas where they have a clear point of difference with the discounters, in our view,” the authors write.

Morgan Stanley is now revising its market share forecasts upwards for Aldi and Costco. It had previously projected Aldi to increase from 5.5 per cent to 11.1 per cent in five years’ time, and Costco from 0.7 per cent to 1.8 per cent.

“Should, as we predict, the discounters take 670 basis points of market share we think it near impossible that Coles and Woolworths together can hold market share,” the authors write. “Put simply, IGA (11.4 per cent) don’t have enough share to give up.”

Aldi has addressed its perceived weak areas of queue length, convenience and freshness compared with 2013, the survey found.

The analysis showed more than 40 per cent of Aldi customers were switching from Coles, with value for money and good promotions the most common reasons. The most pronounced customer migration, however, is from Woolworths to Coles.

“Coles has made broadbased improvements, notably in value for money and good promotions, compared with Woolworths, which has improved in some areas but has fallen in value for money and good promotions,” the authors write.

Worryingly for Woolies, its price perception among customers has deteriorated significantly despite its initial investment. Fifty-five per cent of disaffected customers left due to “poor value for money” and 38 per cent due to “poor promotions”, according to Morgan Stanley.

Awareness of Aldi and Costco has improved significantly since 2013, with Aldi increasing from 82 per cent to 87 per cent, and Costco from 54 per cent to 68 per cent.

Despite high awareness, relatively few have shopped at the discounters in the past 12 months — 52 per cent had shopped at Aldi and 11 per cent at Costco. Twenty-seven per cent are regular shoppers of Aldi and 4 per cent at Costco. Only 12 per cent shopped most often at Aldi and 0.4 per cent at Costco.

The big problem for Aldi is location — it scored the lowest out of Coles, Woolworths and IGA for “conveniently located”, but came second behind Woolies for “good parking facilities”.

“Coles shoppers are driven by value for money and convenience, Woolworths shoppers by convenience, Aldi shoppers by value for money and IGA shoppers by convenience,” they write.

[e-mail]