German discount department store Kaufland has demonstrated its commitment to expanding in Australia by inking deals to buy land.
Kaufland is part of the Schwarz Group, one of the world's largest retailers, which also owns discount supermarket Lidl.
Lidl was initially interested in setting up in Australia, but changed its mind due to the concentration of Australia's $90 billion-plus supermarket sector. Lidl is now investing heavily in the US.
Schwarz Group chose last year instead to bring Kaufland to Australia, believing that US retail Costco's slow rollout had created an opportunity in the so-called "hypermarket" market.
Kaufland is believed to need at least 15 to 20 stores to make its Australian investment viable .
But Kaufland's insistence on buying land rather than leasing suggests it won't open stores for at least a couple of years.
Kaufland is believed to need at least 15 to 20 stores to make its Australian investment viable and has searched everywhere from Geelong to Newcastle and the Gold Coast.
Michael Bate, head of retail at Colliers, said Schwarz Group is "amassing lots of freehold sites in Melbourne, Adelaide and Brisbane at present and looking to own and build their own distribution centres".
Sydney is out of the mix because its land for retail has largely been stitched up by the big supermarkets Woolworths and Coles, and property trusts, and Kaufland does not want to rent.
German customers have compared Kaufland to Big W or Kmart, meaning its market entry will further exacerbate competition for the local retail chains.Credit: Getty Images
In addition, Kaufland "refuse to lease their distribution centres as they say it's their lifeline", Mr Bates said. "If they don't have control of their distribution centres they could potentially lose their lifeline to their stores."
Mr Bate said Schwarz Group had yet to decide where to put its distribution centres, but many major distribution centres have been built in Melbourne's west.
Kaufland has set up its headquarters in Melbourne and is in talks with the Victorian government about its expansion plans.
A spokeswoman for Kaufland said: "We're sorry but we hope you will appreciate that we're still not able to give you further information at this moment."
German discount supermarket Aldi took a similar approach to owning land when it entered Australia at the turn of the century.
Fairfax Media last week revealed Aldi had amassed a $2 billion-odd property portfolio in Australia, with land titles searches showing it has 365 titles.
Now one of Australia's biggest retailers with $10 billion in annual sales, Aldi is using mixed-use development to secure sites in the inner suburbs of Melbourne and Sydney.