Aldi says no to bulk-buy as grocery price wars heat up

Supermarket group Aldi will not enter the bulk-buy space as competition heats up among supermarkets to offer lower prices in a cost-of-living crisis.

Aldi managing director Jordan Lack said the German chain was on average 15-20 per cent cheaper than dominant competitors Coles and Woolworths, with the discounting helping the retailer carve out a 9.5 per cent share of the grocery market.

Aldi is eager to tell Australians it has the cheapest prices this Christmas as competitors expand their range of affordable products and offer discounts.Credit: Oscar Colman

While Aldi has held internal discussions about the bulk-buying space, the discount supermarket is ultimately choosing not to compete in this area after observing that shoppers typically tend to stick to a certain budget for their grocery spend.

“When customers have that limited amount of money to spend each week, I think it’s really important that they can get the breadth of their goods. We haven’t changed our ranging structures to move to bulk in this time because we actually have the right pack sizes at the best price possible,” Lack said.

Woolworths and Coles, which command about 37 per cent and 28 per cent of market share respectively, have expanded their home-brand and private label ranges as they observe “trading down” behaviour and expect customers to celebrate Christmas at home.

However, Lack said that Aldi’s model doesn’t rely on a high-low pricing strategy, where a retailer initially sells a product at a high price and then periodically offers it at a discount to attract customers.

“Competitors use high-low pricing a lot in their stores … We don’t have the ‘high price this week, low price next week’ where it’s in a catalogue and people have to stock up,” Lack said.

“We just have that lowest price on an everyday basis, so that’s what customers will see when they come into our stores.”

Australian shoppers are counting their dollars more carefully than ever this year after inflation rose 7.8 per cent across 2022 and 13 interest rates put pressure on household budgets, which led to bigger and longer Black Friday sales over the weekend.

Food inflation, which peaked at 9.2 per cent in the December quarter of 2022, rose by 4.8 per cent in the September quarter of this year.

Lack believes cost pressures this year are hitting customers harder than during the global financial crisis more than a decade ago.

“This is my 15th Christmas at Aldi and I’ll be confident to say that this is the most challenging space customers have ever gone into.”

The drive towards value for money has also seen retailers like Bunnings expand their cleaning range for customers to save money by buying in bulk.

Aldi Australia managing director Jordan Lack says this Christmas is looking tougher than the GFC.Credit: Peter Rae

Cost-of-living pressures have encouraged more people to visit the discount supermarket more frequently: the number of people who have visited Aldi stores has grown for three consecutive quarters, rising 2.6 per cent year-on-year, while frequency has ticked up 2.5 per cent year-on-year.

As a privately owned company, Aldi does not have the corporate obligations that its ASX-listed competitors do to shareholders, which Lack said allows it to be “disciplined to stay true to value”.

MST Marquee senior analyst Craig Woolford said Aldi has always been known for good value, but noted that Coles and Woolworths had stepped up their affordable, home-brand and private-label ranges recently.

“It’s a more balanced market than what we would’ve seen five to 10 years ago,” he said.

“There is increasing risk over the next 12 months that – as price inflation fades away – there’s a greater intensity of chasing sales, and that could be the ingredients for a price war.”

Woolford noted Christmas was a key period for retailers eager to offer discounts to entice shoppers who are spending more on bigger baskets during the holiday season.

“Winning at Christmas, even for a supermarket, can have a bearing on profitability,” he said.

“Everyone is entertaining and celebrating, and there [are] just a lot more sales dollars to be fighting over, so Christmas tends to be a period where promotional intensity rises a bit.”

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