tag:theconversation.com,2011:/us/topics/aldi-9817/articlesAldi – The Conversation2024-02-20T06:09:16Ztag:theconversation.com,2011:article/2238572024-02-20T06:09:16Z2024-02-20T06:09:16Z8 ways Woolworths and Coles squeeze their suppliers and their customers<p>To hear the Woolworths and Coles chief executives speak on <a href="https://www.abc.net.au/news/2024-02-19/super-power-the-cost-of-living-with-coles-and-woolworths/103486508">Four Corners</a> this week, you’d think their industry was highly competitive.</p>
<p>For instance, Woolies’ chief Brad Banducci said:</p>
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<p>this community over here, there will be three Coles stores within two kilometres of it, at least one ALDI store, a series of independents, ability to within 24 hours have a quarter of our store delivered by Amazon – it’s an incredibly competitive market</p>
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<p>Meanwhile, Coles’ chief Leah Weckert said:</p>
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<p>there are quite often comparisons that are made between the UK and Australia, but Australia has about a third of the population, and we operate stores on a geographic footprint 30 times the size, those considerations need to be taken into account </p>
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<p>Between them, Coles and Woolworths control <a href="https://www.abc.net.au/news/2024-02-20/woolworths-coles-supermarket-tactics-grocery-four-corners/103405054">65%</a> of Australia’s grocery market. Aldi has just 10%, and independents such as IGA have the rest. </p>
<p>Four Corners reported that meant that, on average, for every $10 Australians pay for groceries, $6.50 is spent at Coles and Woolworths, and just $1 at Aldi. In the United Kingdom, there are five major chains vying for a cut of that $10. </p>
<p>But having a large market share isn’t the same as unreasonably using it. </p>
<p>This week’s Four Corners set out eight ways in which Coles and Woolworths are said to use their market power, each of which will be examined by the Australian Competition and Consumer Commission’s <a href="https://www.accc.gov.au/inquiries-and-consultations/supermarkets-inquiry-2024-25">inquiry</a> into supermarkets.</p>
<p>Many hurt their suppliers more than their customers.</p>
<h2>1. Squeezing farmers</h2>
<p>Hundreds of farmers have little choice but to sell their crops to the big two, and little choice but to accept whatever is offered.</p>
<p>One cherry farmer sent 15 tonnes of cherries to Coles – an entire semi-trailer load. He hoped to receive A$90,000. </p>
<p>Instead, he was told the fruit was not up to standard and was only able to get $5,800 on the seconds market.</p>
<p>He said when Coles is dealing with thousands and thousands of pieces of fruit, it can pick out ten pieces and say the consignment is no good.</p>
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<p>so that is power, that’s market power when you can simply reject something for no great reason</p>
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<p>The behaviour described might amount to “<a href="https://en.wikipedia.org/wiki/Competition_and_Consumer_Act_2010">misuse of market power</a>” under the Competition and Consumer Act 2010. </p>
<h2>2. Demanding money to accept price increases</h2>
<p>Four Corners told the story of a supplier who asked to be paid 5% more and was told the request would be approved only if he paid Coles A$25,000.</p>
<p>The lump sum was for promotions. </p>
<p>It said the Coles buyer’s initial desire to keep prices low for the consumer had been “quickly forgotten”.</p>
<p>The supplier said if he wasn’t prepared to do what the supermarket wanted, there was “a lot of intimidation”.</p>
<p>The tools used included deleting suppliers’ products from sale, forcing customers to buy their competitors’ products. </p>
<p>While this behaviour appears not to be illegal, it might worry the Australian Competition and Consumer Commission.</p>
<h2>3. Charging for Coles Radio</h2>
<p>Four Corners said suppliers wanting to do business with the big two were asked to pay for in-house advertising. </p>
<p>It quoted the cost of a full-page ad in Woolworths’ Fresh Magazine at $30,000, and the cost of a four-week spot on Coles radio at $28,000.</p>
<p>Suppliers were also expected to meet the cost of special discounts rather than the supermarket. That means suppliers need to set their recommended retail price at a higher level than was needed in order to offer periodic discounts.</p>
<p>While quite legal, this behaviour has the effect of forcing up general prices. It would be illegal if it misrepresented ordinary prices. </p>
<h2>4. Matching prices</h2>
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<a href="https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Photo of prices being changed" src="https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/576669/original/file-20240220-20-rnn4ko.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>The supermarket giants monitor each other’s pricing very closely. If one changes its prices, the other follows.</p>
<p>A former category manager for Coles and Woolworths said if one put up a price, the other would quickly follow.</p>
<p>He said if you did five shops in Woolworths and five in Coles and spent around a hundred dollars, there would only be a few cents difference.</p>
<p>The behaviour might be the result of intense price competition of the kind the Commission wants to encourage, or it might be the result of an implicit understanding between the big two not to compete on price, something the Commission will be keen to determine.</p>
<h2>5. Blaming inflation</h2>
<p>Woolworths’ latest <a href="https://www.woolworthsgroup.com.au/content/dam/wwg/investors/reports/2023/f23-full-year/Woolworths%20Group%202023%20Annual%20Report.pdf">annual report</a> shows its cost of doing business was flat, but its profit margin from selling groceries climbed from 5.3% to 6%, which meant an extra $318 million in profits.</p>
<p>An industry insider told Four Corners that the big two used “the cover of inflation” to raise prices, something each denied.</p>
<p>Woolworths said its price increases were legitimate, pointing to increases in the price of fertiliser, international freight, wages, and the cost of disruptions in obtaining goods.</p>
<p>Even if unjustified, there is nothing illegal about raising prices, unless false representations are made about the reasons, which is something the Commission will want to examine. </p>
<h2>6. Banking land</h2>
<p>An industry insider told Four Corners the big two buy up “spoiler sites” years before they even get approvals to build.</p>
<p>If they get the green light, it’s a new supermarket. If not, they’ve kept their rivals out.</p>
<p>In one growing community west of Brisbane, Woolworths bought more than 6 hectares of land over 11 years. But a supermarket is still years away.</p>
<p>German supermarket giant Kaufland abandoned plans to enter the Australian market in 2020. Media reports said a lack of suitable sites was one factor.</p>
<p>The Commission would be hard-pressed to find such behaviour was illegal unless it was able to make a case that it significantly lessened competition.</p>
<h2>7. Dark stores</h2>
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<p>Delivery and click-and-collect orders sometimes come from “dark stores” without customers in which stock pickers work at speed in what can be stifling heat.</p>
<p>“There is an industry standard of a pick rate of about 180 items per hour,” one stock picker said. “Our warehouse, particularly during busy periods, will push you to go above and beyond that, which might be 210, 220.”</p>
<p>In the past, the names of pickers who fell behind were displayed in red.</p>
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<p>Every summer there’s people who feel dizzy, every summer there’s people whose sweat’s just dripping off them and they want to sit down, but you get a 15-minute break in a five-hour shift</p>
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<p>While not infringing on competition law, such behaviour might breach industrial laws. The Commission is likely to find it beyond the scope of its inquiry.</p>
<h2>8. A conduct code with no penalty</h2>
<p>Former Australian Competition and Consumer Commission Chairman Rod Sims, described the Food and Grocery Code of Conduct as a “joke” because it had no penalties. </p>
<p>He said it was like having a speed limit of 60 kilometres an hour with no penalty for driving at 80.</p>
<p>Woolworths conceded it hadn’t received a single complaint under the grocery code of conduct in the past year. Asked why, chief executive Brad Banducci said Four Corners should ask suppliers.</p>
<p>Only one continuing supplier agreed to appear in the program on the condition that the appearance was anonymous.</p>
<p>The Commission is certain to recommend that the code be given teeth.</p>
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<h2>Over to the Commission</h2>
<p>The Competition and Consumer Commission’s investigation is likely to confirm that Australian supermarkets have some of the highest profit margins in the world, deriving in large part from their high market share.</p>
<p>At issue will be what this enables them to do to their suppliers and customers.</p>
<p>The Commission will publish an <a href="https://www.accc.gov.au/inquiries-and-consultations/supermarkets-inquiry-2024-25">issues paper</a> this month and report to the government in August.</p>
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Read more:
<a href="https://theconversation.com/why-prices-are-so-high-8-ways-retail-pricing-algorithms-gouge-consumers-223310">Why prices are so high – 8 ways retail pricing algorithms gouge consumers</a>
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<img src="https://counter.theconversation.com/content/223857/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sanjoy Paul does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Suppliers and customers are squeezed harder in Australia than in other countries because Coles and Woolworths control 65% of the market.Sanjoy Paul, Associate Professor, UTS Business School, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2232322024-02-14T19:21:22Z2024-02-14T19:21:22ZSoft plastic recycling is back after the REDcycle collapse – but only in 12 supermarkets. Will it work this time?<figure><img src="https://images.theconversation.com/files/575297/original/file-20240213-28-kni29l.jpg?ixlib=rb-1.1.0&rect=33%2C20%2C4459%2C2923&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/colorful-used-plastic-bags-backlit-pattern-1618595941">Mykolastock, Shutterstock</a></span></figcaption></figure><p>After the memorable <a href="https://www.smh.com.au/national/fire-signalled-fatal-end-to-coles-and-woolies-plastic-recycling-program-20221109-p5bwqb.html">collapse of Australia’s largest soft plastic recycling program REDcycle</a> in late 2022, a new scheme is emerging. It’s remarkably similar, albeit on a much smaller scale. </p>
<p>The trial underway in <a href="https://www.theguardian.com/australia-news/2024/feb/09/woolworths-coles-and-aldi-to-roll-out-soft-plastics-collection-bins-in-12-melbourne-stores">12 Melbourne supermarkets</a> intends, once again, to provide customers with an in-store option for recycling “scrunchable” food packaging.</p>
<p>It’s estimated Australia uses <a href="https://www.dcceew.gov.au/environment/protection/waste/publications/national-plastics-plan-summary">more than 70 billion pieces</a> of soft plastic a year. Most of it still ends up in landfill or blows into streets and waterways, <a href="https://www.science.org/doi/10.1126/sciadv.1700782">polluting our rivers and oceans</a>. So 12 stores won’t cut it in the long term. </p>
<p>But starting small is a good idea. REDcycle collapsed under its own weight, stockpiling recyclable material with nowhere to go. The new scheme will feed new, purpose-built waste processing facilities so it has much better prospects. </p>
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Read more:
<a href="https://theconversation.com/redcycles-collapse-is-more-proof-that-plastic-recycling-is-a-broken-system-194528">REDcycle's collapse is more proof that plastic recycling is a broken system</a>
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<h2>What do we know about the new scheme?</h2>
<p>Australia’s <a href="https://www.woolworthsgroup.com.au/content/dam/wwg/sustainability/documents/Taskforce%20Roadmap%20-%20Final%20v2.docx.pdf">Soft Plastics Taskforce</a> is behind the new trial. The taskforce is a coalition of the three major supermarkets: Woolworths, Coles and Aldi. It was established in the wake of REDcycle’s demise and is chaired by the federal government Department of Climate Change, Energy, the Environment and Water.</p>
<p>The taskforce assumed responsibility for roughly 11,000 tonnes of soft plastic, formerly managed by REDcycle, across 44 locations <a href="https://www.abc.net.au/news/2023-11-30/redcycle-soft-plastics-recycling-update/103135156">across Australia</a>. </p>
<p>Addressing the lack of soft plastics recycling infrastructure in Australia is a top priority. This is the main reason REDcycle was unable to process the mountains of soft plastics it had stored around the country.</p>
<p>Much like the original REDcycle scheme, the new small-scale trial in Victoria has identified <a href="https://www.theguardian.com/australia-news/2024/feb/09/woolworths-coles-and-aldi-to-roll-out-soft-plastics-collection-bins-in-12-melbourne-stores">several potential end markets</a> for used soft plastic. <a href="https://www.woolworthsgroup.com.au/content/dam/wwg/sustainability/documents/Taskforce%20Roadmap%20-%20Final%20v2.docx.pdf">After treatment</a>, it could become an additive for asphalt roads, a replacement for aggregate in concrete, or a material for making shopping trolleys and baskets. </p>
<p>To be a successful and lasting solution, the scheme must be cost-effective and suitably located, with established markets for the recycled products.</p>
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<h2>Why are soft plastics so difficult to recycle?</h2>
<p>Recycling soft plastic packaging is <a href="https://pubs.acs.org/doi/full/10.1021/acsapm.1c00648?casa_token=euz2ItVOSfgAAAAA%3Ax6rHJAiZUkLUPQZTDJFLG1gnJ1R-41qVXxnl6jXg9_QdcaQ9GDBI5OzLtRyGCz5LMF4kZQ4KFYSfyA">particularly challenging</a>, for several reasons. </p>
<p>Plastic packaging is typically made from the petrochemicals <a href="https://www.sciencedirect.com/science/article/pii/S0048969718307307">polyethylene or polypropylene</a>, and often contains a mix of materials, including various types of plastics and additives for flexibility and durability. This blend of materials makes it difficult to separate and recycle effectively. </p>
<p>To make matters worse, soft plastics readily absorb residues from food, grease and other substances. This causes contamination, <a href="https://www.csiro.au/en/news/All/Articles/2022/November/soft-plastics-recycling">reducing the quality of the recycled material</a>. </p>
<p>There’s also less demand for recycled soft plastics, compared to other plastics. Many manufacturers prefer using brand new or “virgin” plastics or recycled rigid plastics instead, such as <a href="https://link.springer.com/article/10.1007/s42824-020-00014-y">recycled polyethylene terephthalate (rPET)</a>, leaving limited avenues for recycled soft plastics to find new uses. </p>
<p>Soft plastics can get tangled or stuck in machinery at recycling or waste-processing facilities, causing <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/marc.202000415">inefficiencies and disruptions in the process</a>.</p>
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<em>
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Read more:
<a href="https://theconversation.com/3-little-known-reasons-why-plastic-recycling-could-actually-make-things-worse-206060">3 little-known reasons why plastic recycling could actually make things worse</a>
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<h2>Finding local solutions</h2>
<p>We need to make it economically viable to recycle low-value plastics such as soft plastic packaging. Placing recycling facilities closer to communities and transport can save money and reduce emissions. So local, decentralised, small-scale recycling or reprocessing infrastructure is the way to go. </p>
<p>Fit-for-purpose facilities can develop the specialised processing and manufacturing techniques needed to handle soft plastics. This takes care of the contamination problem and creates new options for developing recycled products. </p>
<p>Local recycling initiatives also foster community engagement and awareness. We need to encourage individuals to participate actively in recycling efforts, and foster local businesses focused on resource recovery. To this end, we are currently exploring innovative enterprise-based recycling solutions in remote First Nations communities in Queensland.</p>
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<h2>The high cost of cheap packaging</h2>
<p>Soft plastics are lightweight, flexible and inexpensive to produce. This has made them popular choices for packaging. But this ignores the problems of disposal, including harm to nature and people. There <a href="https://www.ellenmacarthurfoundation.org/the-new-plastics-economy-rethinking-the-future-of-plastics">has to be a better way</a>. </p>
<p>Recycling soft plastic packaging does face numerous obstacles. These stem from complex composition, contamination risks, sorting and processing challenges, scarce recycling infrastructure and limited demand for the end product. </p>
<p>Tackling these challenges requires collaborative efforts from industry players, policymakers, consumers and researchers. We need to develop innovative local solutions and reduce consumption of single-use plastic. </p>
<p>Holding producers accountable for the end-of-life management of their products is paramount. In the meantime, local, decentralised recycling infrastructure offers a promising solution to improve the efficiency and sustainability of soft plastic recycling, while empowering communities to contribute to a circular economy.</p>
<p>The trial in Victoria raises hopes of a working solution for post-consumer soft plastic. This time they are starting on a small scale. That should make it easier to manage the volume of material available for recycling and avoid secret stockpiles. Ultimately this approach could see “micro-factories” cropping up across the country, turning what was once waste into viable, useful products. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-need-a-global-treaty-to-solve-plastic-pollution-acid-rain-and-ozone-depletion-show-us-why-207622">We need a global treaty to solve plastic pollution – acid rain and ozone depletion show us why</a>
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<img src="https://counter.theconversation.com/content/223232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anya Phelan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s Soft Plastics Taskforce has been under pressure to fill the vacuum left by the demise of REDcycle. But this time the small trial announced for Melbourne has the potential to succeed.Anya Phelan, Senior Lecturer in Entrepreneurship & Innovation, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2217432024-01-24T19:06:04Z2024-01-24T19:06:04ZWhat’s behind Woolworths, Aldi and Kmart distancing themselves from Australia Day?<figure><img src="https://images.theconversation.com/files/571029/original/file-20240124-19-hrfn7d.jpg?ixlib=rb-1.1.0&rect=6%2C613%2C4345%2C2448&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/aussie-thongs-beach-254045218">Kairosing/Shutterstock</a></span></figcaption></figure><p>Earlier this month, <a href="https://www.abc.net.au/news/2024-01-11/woolworths-big-w-shops-australia-day-merch-sales-decision/103309612">Woolworths</a> announced it would no longer stock merchandise promoting Australia Day on January 26, a date surrounded by controversy.</p>
<p>While observed as a national public holiday for more than 90 years, a 2021 <a href="https://www.theguardian.com/australia-news/2024/jan/17/conservative-politicians-stoking-australia-day-debate-online-with-paid-ads-analysis-finds">ABC social survey</a> found 55% of Australians supported changing the date.</p>
<p><a href="https://insiderguides.com.au/why-is-australia-day-so-controversial/">January 26</a> marks the beginning of the colonisation of Australia, bringing violence, theft and oppression to the First Nations peoples who had lived on the land for more than 50,000 years. It is also called Invasion Day, Survival Day or Day of Mourning.</p>
<p>Many <a href="https://www.news.com.au/finance/business/other-industries/more-aussie-businesses-adopt-woke-australia-day-stance/news-story/f31514b039e81173118174bf01215435">workplaces</a> including ANZ, Telstra and Woodside have encouraged the shift away from celebrating the date as Australia Day by offering employees an alternative day off.</p>
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Read more:
<a href="https://theconversation.com/why-we-should-celebrate-australia-day-on-march-3-the-day-we-became-a-fully-independent-country-221015">Why we should celebrate Australia Day on March 3 – the day we became a fully independent country</a>
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<p>Woolworths is <a href="https://www.bandt.com.au/the-date-is-not-the-issue-kmart-jumps-on-board-australia-day-boycott/">not the only retailer</a> to distance itself from the date this year with Aldi announcing it will not stock Australia-themed products under its Special Buys promotion. Kmart has not sold items specific to January 26 since last year.</p>
<h2>The message the retailers are trying to send the community</h2>
<p>When corporations wade into sociopolitical activism, they commonly overplay social motivations and underplay expected gains to the bottom line. What is unusual about Woolworths’ position is that the company has defended this as a business decision first and foremost. </p>
<p>This raises questions about big retailers shying away from Australia Day merchandise for business rather than social reasons.</p>
<p>Why pursue a business-first, activism-second strategy? Does this appease shareholders? How does the public interpret “activism without activism” and is it authentic? Is this just a move to deflect away from exorbitant prices?</p>
<h2>A business case for activism</h2>
<p>Opposition leader Peter Dutton quickly labelled this as “<a href="https://www.theguardian.com/australia-news/2024/jan/11/woolworths-big-w-australia-day-merchandise-dropped-sale-peter-dutton-boycott-calls">peddling woke agendas</a>”. But a Woolworths Group spokesperson cited a “<a href="https://www.abc.net.au/news/2024-01-11/woolworths-big-w-shops-australia-day-merch-sales-decision/103309612">gradual decline</a>” in demand for Australia Day-themed products. They also acknowledged the broader discussion of January 26th’s significance to different communities.</p>
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<a href="https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Large group of men and women protesting against Australia Day" src="https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/571030/original/file-20240124-27-vlojmg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A 2021 survey found 55% of Australians supported changing the date.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/search/australia-day-protest?image_type=photo">Shutterstock/Dave Hewison Photography</a></span>
</figcaption>
</figure>
<p>A key reason to make a business case for corporate activism lies with <a href="https://www.smartcompany.com.au/business-advice/politics/shareholders-companies-yes-campaign-funding/">shareholders</a>. They typically oppose companies taking a stand on social justice issues believing businesses should “stay in their lane”.</p>
<p>Indeed, when Woolworths supported the Indigenous Voice to Parliament referendum, it resulted in a <a href="https://www.ft.com/content/8e057289-2aa9-49b1-a1cf-e1de85c769a8">backlash</a>.</p>
<p><a href="https://journals.sagepub.com/doi/full/10.1177/0022242920937000">Academic research</a> indicates a brand’s activist position can harm shareholder returns. Investors view this as a misallocation of resources that threatens profit maximisation. Perceived <a href="https://journals.sagepub.com/doi/10.1177/0022243720947682">risk of corporate activism</a> is heightened for businesses with large market share, like Woolworths. They have more customers to lose and fewer to gain. </p>
<p>In this instance, Woolworths took a business-first, activism-second approach. This likely appeases shareholders because making merchandising decisions is well within Woolworths’ remit. Also, by the retailer cloaking its activism as profit maximisation, shareholders are less likely to be concerned. </p>
<p>As for customers, they increasingly understand the <a href="https://www.sciencedirect.com/science/article/pii/S0363811111001561">duality of a brand’s motives</a>. If there are perceptions of sufficient social impact, self-serving motives are also deemed acceptable. Woolworths illuminated the profit-making motive while subtly bringing to light the problematic history of Australia Day. </p>
<h2>Activism without activism?</h2>
<p>While Woolworths led with business reasons rather than support of First Nations peoples, it was interpreted by the public as a <a href="https://www.theguardian.com/business/2024/jan/15/peter-dutton-woolworths-australia-day-boycott-blamed-teneriffe-store-vandalism-metro-teneriffe">political act</a>, eliciting debate and grandstanding. </p>
<p>A company of this stature with significant marketing intelligence could have correctly predicted this reaction and made a calculated decision to take a stand on an issue at the front of the public’s mind. Yet this looks like activism without activism. Woolworths brought a sociopolitical issue to the fore but operated behind the curtain of dollars and cents. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/change-the-date-debates-about-january-26-distract-from-the-truth-telling-australia-needs-to-do-197046">'Change the date' debates about January 26 distract from the truth telling Australia needs to do</a>
</strong>
</em>
</p>
<hr>
<p>Consumers are discerning about corporate activism, requiring companies to move beyond marketing rhetoric and demonstrate meaningful actions. Usually activism attracts criticism when brands are perceived to be <a href="https://theconversation.com/post-gillette-other-brands-are-better-at-matching-practice-with-talk-but-dont-get-the-publicity-110595">woke washing</a> - that is, misleading consumers about prosocial corporate practices. Brand activism is therefore sometimes viewed as a “<a href="https://www.sciencedirect.com/science/article/abs/pii/S0016328722001793">fake marketing trick</a>” because brands are not backing up their stance on social justice issues.</p>
<p>Woolworths by contrast has taken concrete action - not capitalising on the “Australia Day” term and imagery in its marketing and merchandise on January 26.
This move falls short of <a href="https://journals.sagepub.com/doi/10.1177/0743915620947359">authentic brand activism</a>.</p>
<h2>A deflection tactic?</h2>
<p>Australia’s fraught socioeconomic climate has put retailers in the spotlight. Currently, brands like Woolworths are facing media and political scrutiny for price gouging. In Queensland, there is a <a href="https://www.abc.net.au/news/2024-01-19/qld-grocery-prices-parliamentary-inquiry-woolworths-coles/103367088">parliamentary inquiry</a> into the discrepancy between prices paid to suppliers and those paid at the checkout. The Australian Competition and Consumer Commission and Senate are also holding inquiries.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Signs promoting Aldi and Woolworths" src="https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/571058/original/file-20240124-25-b1td3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Is the stance against Australia Day a move to distract from the pricing inquiries?</span>
<span class="attribution"><span class="source">Rob1037/Shutterstock</span></span>
</figcaption>
</figure>
<p>Aside from making room for more profitable merchandise or advancing the reconciliation agenda, is Woolworths deflecting attention from its role in these problems? Changing the conversation to something time-bound (that is, likely to die down January 27th) may be beneficial. </p>
<p>Research speaks to such a <a href="https://www.sciencedirect.com/science/article/pii/0363811194900558?ref=pdf_download&fr=RR-2&rr=849d29c54d921f66">values-based strategy</a>. Brands call on social initiatives to deflect from negative issues and improve future discourse about their business. In this case, directing discussion to their social responsiveness, even if secondary, enables Woolworths to <a href="https://www.tandfonline.com/doi/full/10.1080/13563467.2021.1926954">divert attention away</a> from potentially exploitative practices. </p>
<h2>Corporate activism: an expanding and evolving strategy</h2>
<p>Woolworths’ approach to activism warrants examination. While the company took action that ostensibly opposes the celebration of Australia Day on January 26, they communicated a profit motive fitting for the largest grocery chain in Australia by market share. They skirted full-blown corporate sociopolitical activism, an approach that was possibly more digestible for shareholders and customers (politicians less so).</p>
<p>However, this approach is also less authentic. Woolworths states its <a href="https://mumbrella.com.au/what-brands-can-learn-from-the-woolworths-australia-day-debacle-812136">commitment to reconciliation</a> through the support of the Indigenous Voice to Parliament and the Uluru Statement from the Heart. So where in this most recent decision was the marketing rhetoric that embraces and respects Indigenous Australians? This represents a lost opportunity to elevate the brand and promote the <a href="http://changethedate.org/">Change the Date </a>movement.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/welcome-to-may-9-the-true-australia-day-204555">Welcome to May 9 – the true Australia Day</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/221743/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Profits, not social justice, appear to be why the big grocers are dropping support for Australia Day. But creating a distraction when they’re being criticised for high prices is also possible.Amanda Spry, Senior Lecturer of Marketing, RMIT UniversityDaniel Rayne, Marketing lecturer, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1764222022-02-08T10:04:20Z2022-02-08T10:04:20ZThe case of the caterpillar cakes: why legal protection for a shape is so hard to come by<p>UK retailers Marks and Spencer (M&S) and Aldi have finally <a href="https://www.theguardian.com/business/2022/feb/01/marks-spencer-and-aldi-call-truce-in-colin-the-caterpillar-cake-war">called a truce</a> to the trademark-based legal spat pitting their caterpillar cakes, Colin and Cuthbert, against each other. While details of the settlement have not been made public, Aldi’s Cuthbert will <a href="https://www.theguardian.com/business/2022/feb/01/marks-spencer-and-aldi-call-truce-in-colin-the-caterpillar-cake-war">not reportedly</a> return in quite the same form. As Aldi tweeted, upon announcing that an agreement had been reached:</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1488529958129524746"}"></div></p>
<p>Colin the Caterpillar, a roll sponge cake decorated with milk and white chocolate icing and sprinkles, has been an M&S stalwart for more than 30 years. The retailer claims to have sold more than 15 million to date. Since 2011, <a href="https://www.independent.co.uk/extras/indybest/food-drink/colin-caterpillar-cuthbert-aldi-cake-b2005818.html">rival products</a> with similarly alliterative names have appeared: Asda’s Clyde, Tesco’s Curly, Waitrose’s Cecil, Co-op’s Curious and <a href="https://metro.co.uk/2019/10/05/aldi-selling-cuthbert-caterpillar-cake-yes-ms-knows-10867060/">Cuthbert</a>.</p>
<p>In April 2021, presumably because it was thought that, of all the caterpillar cakes, Cuthbert most closely resembled Colin, M&S launched legal proceedings to protect its intellectual property and get Aldi to remove the product from its shelves. The retailer claimed that the similarity between the two cakes would lead consumers to think that they were of the same standard, thereby allowing Cuthbert to ride on Colin’s coattails. </p>
<p>Companies often seek to protect, <a href="https://www.youtube.com/watch?v=_CM9-4Qrj3I&list=PLij_WrWeezY8lmE7_m35m_LxPm2H3bta0&index=3">as trademarks</a>, certain signs that help them distinguish their products and services from those of their competitors, such as brand names, logos and slogans. Along with patents (which protect innovative technical solutions) and copyright (which protects creative or intellectual works such as books and music), they are a form of intellectual property. </p>
<p>The Colin v Cuthbert dispute hinges specifically on trademarks, because it related to the distinctive characteristics of commercial assets. M&S has held trademarks in the UK in relation to <a href="https://trademarks.ipo.gov.uk/ipo-tmcase/page/Results/1/UK00002499694">Colin’s name</a> and <a href="https://trademarks.ipo.gov.uk/ipo-tmcase/page/Results/1/UK00003509740">green packaging</a> since 2009 and 2020 respectively, but these have not been infringed. </p>
<p>The problem for M&S is that its trademark would probably not extend to the underlying idea of a chocolate roll with a smiley face on it. Securing protection for the shape of a product is <a href="https://doi.org/10.1093/jiplp/jpx028">actually quite difficult</a> in trademark law – not to mention proving that a competitor has presented his goods as those of somebody else.</p>
<p>The <a href="https://www.independent.co.uk/news/business/news/nestle-kit-kat-trade-mark-denied-eu-court-four-finger-chocolate-shape-a7477196.html">four-finger-shaped KitKat</a> chocolate bar and the <a href="https://www.theguardian.com/world/2017/nov/01/black-cab-shape-not-distinctive-enough-to-be-trademark-say-judges">shape of the London taxi</a> are two examples of iconic shapes that have not succeeded. One key reason behind this is that the average consumer doesn’t usually make assumptions about the origin of products on the basis of their shape, or that of their packaging, when other graphic or word elements are absent.</p>
<h2>Passing off</h2>
<p>There have been cases in the UK where shapes and packaging have attracted protection under what jurists refer to as the law of passing off. <a href="https://www.gov.uk/how-to-register-a-trade-mark/unregistered-trade-marks">Passing off</a> offers legal protection against harm to what is termed the “goodwill” of a business. And it can be used to protect unregistered trademarks.</p>
<p>Goodwill here is a <a href="https://heinonline.org/HOL/Page?handle=hein.journals/edinlr13&div=15&g_sent=1&casa_token=oT2yr7CIW7EAAAAA:aUZr8kIEfsPoGbidzl9h1oXNL2899aQaZAJ_qeBbw9qeXo_OZbuf8KPC86e2qRvXFk1BVJOIEuA&collection=journals">legal concept</a>, which refers to a business’s means of attracting people’s custom. It is harmed when a trader suggests – through misdescription on packaging or parasitic copying of a well-known product – that their product or service has some association or connection with another trader, when this is not the case. </p>
<p>In 2015, pop-star Rihanna famously <a href="https://www.judiciary.uk/wp-content/uploads/2015/01/fenty-others-v-arcadia-others1.pdf">won her battle</a> to stop fashion brand Topshop using an unlicensed image of her on a T-shirt. She did so by convincing a judge that customers buying the top would think she had endorsed it. The Court of Appeal ruled that the unauthorised use of her photograph amounted to passing off.</p>
<p>Passing-off claims are notoriously difficult to establish. If someone promotes their bottled drinking water business as “the De Beers of still water”, they may be infringing the De Beers trademark but it is unlikely that a judge would find that they were passing themselves off as connected to De Beers in any commercial sense.</p>
<p>To win a passing-off claim against Aldi, M&S would have essentially had to prove that Colin had built up such a reputation as a signature product – in the same way that Rihanna had done as a music artist and <a href="https://www.judiciary.uk/wp-content/uploads/2015/01/fenty-others-v-arcadia-others1.pdf">style icon</a> – that customers would be able to recognise it without difficulty. The retailer would also have had to prove that Cuthbert was so similar to Colin that consumers, after opening the packaging, would be misled into thinking that the two were somehow associated.</p>
<p>What is more, the fact that so many supermarket chains now have their own version of a caterpillar cake – coming in a variety of sizes and decorative features – would not have helped in establishing that Colin is unique. M&S would have had to prove that in the minds of cake buyers in the UK, the caterpillar has not become a generic shape for cakes.</p>
<p>Further, Aldi’s <a href="https://twitter.com/AldiUK/status/1383076426224705540?s=20&t=px0UuyGf_zbaeoAJgpTcyw">excellent Twitter campaign</a> – and the widespread publicity the lawsuit has attracted – will have also contributed to dispersing any consumer confusion. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1383076426224705540"}"></div></p>
<p>Lastly, it would have been difficult for M&S to argue that Aldi’s caterpillar cake had damaged or had the potential to damage the goodwill in Colin – that is, its power to attract and retain buyers of the cake. The market for caterpillar cakes is saturated: there are just so many to choose from. </p>
<p>The agreed settlement between the two parties means there was no court judgement on the facts. The terms of the settlement remain confidential. It is unknown whether liability – that is, blame – was admitted by Aldi for the wrong allegedly suffered by M&S.</p>
<p>Rarely does a party in a settlement walk away thinking, I have won. Typically, there is no winner and no loser in a negotiated resolution. This case will nonetheless have seen both M&S and Aldi benefit from the kind of marketing exposure that money cannot readily buy.</p><img src="https://counter.theconversation.com/content/176422/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trademarking a shape of a product, or proving that a competitor is passing off their product as your own, is not easy. A high-profile settlement, though, is marketing gold.Stavroula Karapapa, Professor of Intellectual Property and Information Law, University of EssexAlexandros Antoniou, Lecturer in Media Law, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1528222021-01-21T18:50:42Z2021-01-21T18:50:42ZThe rise and rise of Aldi: two decades that changed supermarket shopping in Australia<figure><img src="https://images.theconversation.com/files/391081/original/file-20210323-17-1mreav6.jpg?ixlib=rb-1.1.0&rect=481%2C229%2C2708%2C1503&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">anystock/Shutterstock</span></span></figcaption></figure><p>Twenty years ago, on January 25 2001, a virtually unknown German supermarket chain quietly opened its first stores in Australia.</p>
<p>The two <a href="https://www.aldiunpacked.com.au/aldis-contribution-to-new-south-wales/">stores</a> – one in Sydney’s inner-west suburb of Marrickville, the other in the outer south-west, near Bankstown Airport – were small, about a <a href="https://www.smh.com.au/business/aldis-simple-recipe-for-success-20080725-3l48.html">quarter the size</a> of a mainstream supermarket. Each stocked just 900 products, 90% of which were unknown brands. </p>
<p>Shoppers had to bring and pack their own bags themselves. To use a trolley required a “gold coin”. They didn’t seek to entice customers with “<a href="https://www.aldiloyaltycalculator.com.au/">loyalty</a>” rewards or other gimmicks.</p>
<p>Few Australian supermarket executives at the time would have considered them models for success. They couldn’t imagine the impact Aldi would have on Australia’s retail sector and shopping habits.</p>
<h2>Aldi’s history</h2>
<p>Aldi’s story began <a href="https://corporate.aldi.com.au/en/about-aldi/aldi-history/">in 1913</a>, when Anna Albrecht opened a small grocery store <a href="https://corporate.aldi.com.au/en/about-aldi/aldi-history/">in 1913</a> in the city of Essen, western Germany. </p>
<p>Her two sons, <a href="https://www.cnbc.com/2019/05/14/how-aldis-founders-turned-a-local-grocery-into-a-38-billion-fortune.html">Karl and Theo</a>, took over the business after World War II. In the impoverished conditions that followed Germany’s defeat, they focused on keeping costs, and prices, low. Among their strategies were to stock only the most popular items and avoid perishable items. </p>
<p>By the end of the decade they had <a href="https://www.lovemoney.com/gallerylist/51751/aldis-history-and-how-the-german-supermarket-is-taking-over-the-world">more than a dozen stores</a>, and by the end of the 1950s <a href="https://corporate.aldi.com.au/en/about-aldi/aldi-history/">more than 300</a>.</p>
<figure class="align-center ">
<img alt="A Karl Albrecht store in Essen, 1958. Karl was the name of Anna Albrecht's husband." src="https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379671/original/file-20210120-19-1nfdgrx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">One of Karl Albrecht’s stores in Essen, 1958.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Albrecht_Filiale_1958.png">Alfred Wagg Pictures/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>The brothers adopted the name Aldi – combining the first two syllables of Albrecht Diskont (“discount” in German) – in <a href="https://corporate.aldi.us/en/aldi-history/">1961</a> (though accounts differ on the year). </p>
<p>At about the same time (again, accounts differ on the year) they had a major disagreement over whether to sell cigarettes. They resolved the dispute
by splitting the business into two geographic entities: Aldi Nord (“North”), run by Theo (and selling cigarettes), and Aldi Süd (“South”), run by Karl. The split was amicable, and they managed the two divisions collaboratively.</p>
<p>From the late 1960s Aldi began to expand across Europe, beginning with the acquisition of Austrian grocery chain Hofer. It opened its its first US store, <a href="https://www.winsightgrocerybusiness.com/retailers/forgotten-story-aldis-us-debut">in Iowa City</a>, in 1976, and its first British store, <a href="https://www.aldirecruitment.co.uk/about-us">in Birmingham)</a>, in 1990. </p>
<p>So by the time Aldi opened its first stores in Australia, it was a booming multinational. It now has more than 10,000 stores in 20 countries, including China.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Map of Aldi stores worldwide." src="https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=263&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=263&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=263&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=331&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=331&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379883/original/file-20210121-13-1ogazs5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=331&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Aldi stores worldwide. Aldi Nord territory is in blue, Aldi Süd in orange.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Aldi_world_map.png">LnG91/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<hr>
<h2>Aldi’s growth in Australia</h2>
<p>In coming to Australia, Aldi pounced on a gap in the grocery retail market. </p>
<p>The “food discounter” model had been dominated by now defunct <a href="https://australianfoodtimeline.com.au/franklins-founded/">Franklins</a> and <a href="https://www.colesgroup.com.au/about-us/?page=our-history">Bi-Lo</a> (owned by Coles).
By the late 1990s, however, these chains had messed with their “no-frills” model through attempts to go <a href="https://www.afr.com/companies/franklins-with-frills-is-living-dangerously-19970707-kb0no">upmarket</a>. It proved disastrous. Franklins went into terminal decline. Coles abandoned the <a href="https://www.theage.com.au/business/coles-to-rename-rebrand-20060801-ge2to8.html">Bi-Lo brand</a> in 2006.</p>
<p>Aldi expanded quickly. By mid-2003 it had 38 stores in New South Wales and six in Victoria. By 2011, it had <a href="https://www.smh.com.au/business/booming-aldi-steps-up-store-wars-20111002-1l3sz.html">251 stores</a>. By early 2013, <a href="https://retailanalysis.igd.com/news/news-article/t/aldi-australia-expanding-to-new-states/i/6295">more than 280</a>, and had expanded to Canberra. </p>
<p>It overtook the IGA group to become the third-biggest player in Australia’s supermarket sector by the end of 2013 – taking <a href="https://www.roymorgan.com/findings/5427-market-share-narrows-between-coles-woolworths-while-aldi-makes-gains-201402120013">10.3% of all grocery dollars</a> (with Coles having 33.5% and Woolworths 39%). Its first stores in <a href="https://retailworldmagazine.com.au/aldi-south-australia/">South Australia</a> and <a href="https://insideretail.com.au/news/aldi-launches-in-western-australia-201606">Western Australia</a> came in 2016. </p>
<p>It now has more than 500 stores and a 12.4% share of Australia’s <a href="https://www.statista.com/topics/6399/supermarkets-and-grocery-retail-in-australia/">A$110 billion</a> food and grocery sector (according to the most recent data from <a href="http://www.roymorgan.com/findings/8336-fresh-food-and-grocery-report-december-2019-202003230634">Roy Morgan</a>).</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=440&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=440&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=440&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=553&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=553&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379687/original/file-20210120-17-15xlr8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=553&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<hr>
<p>In 2020 Aldi was named <a href="https://www.canstarblue.com.au/stores-services/supermarkets">Australia’s best supermarket</a> by consumer review website Canstar Blue (the seventh time in a decade), and <a href="https://www.bandt.com.au/its-official-bunnings-is-australias-most-trusted-brand-with-coles-the-big-mover/">second-most trusted brand</a> (after Bunnings) by Roy Morgan.</p>
<p>Its practices have influenced how the other supermarkets do business. In particular it has forced competitors to increase their own “private label” (or home-brand) products, introduce “<a href="https://theconversation.com/phantom-brands-haunting-our-supermarket-shelves-as-home-brand-in-disguise-67774">phantom brands</a>”, and promote ever-changing “<a href="https://www.news.com.au/lifestyle/food/eat/coles-launches-fortnightly-best-buys-deals-to-rival-aldis-weekly-special-buys/news-story/38791cc3e43b7acc40b549fa7524e192">special buy</a>” general merchandise ranges.</p>
<h2>Private and phantom labels</h2>
<p>In 2004 private labels comprised <a href="https://coriolisresearch.com/pdfs/coriolis_private_label_in_australia.pdf">an estimated 9%</a> of the products Coles and Woolworths stocked. By 2019 they made up <a href="https://www.afr.com/companies/retail/coles-signs-private-label-deal-with-sainsbury-s-20191108-p538vi">30% of Coles’ sales</a>. Woolworths has similarly increased its private-label range, due explicitly to pressure from <a href="https://www.smh.com.au/business/woolies-braced-for-fight-20130304-2fgwy.html">Aldi’s arrival and expansion</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/love-them-or-loathe-them-private-label-products-are-taking-over-supermarket-shelves-98465">Love them or loathe them, private label products are taking over supermarket shelves</a>
</strong>
</em>
</p>
<hr>
<p>Notably, Aldi sells no “ALDI” branded products. Instead it trades in <a href="https://storebrands.com/aldi-private-brand-powerhouse">phantom brands</a>, such as “Belmont” ice cream, “Radiance” cleaning product and “Lacura” skin care. These brands are intended overcome perceptions of private label items being lower quality.</p>
<p>In <a href="https://www.retail-week.com/grocery/analysis-woolworths-australia-launches-phantom-brand-in-battle-with-aldi/7009930.article">2016</a>, Woolworths launched its own range of phantom brands. Coles followed suit in <a href="https://www.9news.com.au/national/coles-woolworths-aldi-changing-home-brands-to-slicker-packaging/478d7a3c-8ced-4285-aeab-1d58c9e1688f">2020</a> with brands including “Wild Tides” tuna and “KOI” toiletries.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/phantom-brands-haunting-our-supermarket-shelves-as-home-brand-in-disguise-67774">Phantom brands haunting our supermarket shelves as home brand in disguise</a>
</strong>
</em>
</p>
<hr>
<h2>Special buys</h2>
<p>The bigger supermarkets have also been forced to emulate Aldi’s drawcard of bi-weekly “special buys” – heavily discounted items not normally sold in supermarkets. These <a href="https://www.canstarblue.com.au/health-beauty/buy-aldi-special-buy/">have included</a> televisions, lawn mowers, vacuum cleaners, motorcycle jackets, luggage and (curiously for a country like Australia) ski gear.</p>
<p>There are always <a href="https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/aldi-special-buys-called-bait-advertising-160218">limited quantities</a> and shoppers regularly experience disappointment. Despite this – indeed because of this – shoppers will queue and keep coming back. These quirky, seasonal, limited-stock items create excitement and FOMO – <a href="https://www.heraldsun.com.au/news/victoria/inside-the-aldi-cult-following-and-the-secret-behind-the-supermarkets-success/news-story/b5350d3f3d1dfbe044e00e0ced3a7fbf">fear of missing out</a>.</p>
<p>In June 2020, Coles launched its own fortnightly “<a href="https://www.news.com.au/lifestyle/food/eat/coles-launches-fortnightly-best-buys-deals-to-rival-aldis-weekly-special-buys/news-story/38791cc3e43b7acc40b549fa7524e192">special buys</a>”.</p>
<h2>Unapologetically Aldi</h2>
<p>While its competitors have emulated Aldi in several ways, the German chain remains a very different no-frills operation. </p>
<p>It hasn’t bothered with investing in the <a href="https://au.finance.yahoo.com/news/confirmed-self-service-checkouts-not-coming-aldi-australia-005341537.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIBCvlH3fl2r4RuU8SIaKmX8NpTxJNHHWe76sBT0XKML9SQjYhB6aiJEPe2CtH9GqhnIERojtDu2pWvZIh3lKqHcCCx0PaxbpMMxEouRDdhNkr3ZFvlhYG0gWGrnS7ScFqkRNtD7qq-w4P103nUVVFBVsfXojQhupcCbPS20Noa1">self-service checkouts</a> that are now ubiquitous in other stores. It continues to offer only long conveyer belts and <a href="https://www.news.com.au/finance/business/retail/how-checkout-workers-are-able-to-scan-items-fast-at-german-retailer-aldi/news-story/cd1b45f7568bf7d09351bedd21d79d30">seated register operators</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-economics-of-self-service-checkouts-78593">The economics of self-service checkouts</a>
</strong>
</em>
</p>
<hr>
<p>Nor does Aldi have plans to facilitate online deliveries, in which the two supermarket giants have <a href="https://theconversation.com/covid-19-has-changed-the-future-of-retail-theres-plenty-more-automation-in-store-139025">invested heavily</a>.</p>
<p>It never had to cope with <a href="https://www.sbs.com.au/news/caved-too-quickly-coles-slammed-over-plastic-bag-backflip">customer backlash</a> over phasing out free single-use plastic bags either. Because it never offered free shopping bags, always charging 15 cents for them.</p>
<p>So Aldi continues to be an exception to the rule in Australian supermarket retailing. It history suggests that’s a recipe for continued success.</p><img src="https://counter.theconversation.com/content/152822/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Since opening its first Australian stores on January 25 2001, Aldi has profoundly influenced the supermarket landscape.Gary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of TechnologyLouise Grimmer, Senior Lecturer in Retail Marketing, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1382922020-05-17T19:57:00Z2020-05-17T19:57:00ZSupermarkets claim to have our health at heart. But their marketing tactics push junk foods<figure><img src="https://images.theconversation.com/files/335254/original/file-20200515-77247-1s2209u.jpg?ixlib=rb-1.1.0&rect=5%2C5%2C3988%2C2988&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Supermarkets like to <a href="https://www.woolworthsgroup.com.au/page/community-and-responsibility/group-responsibility/environment/inspiring-healthy-choices">portray</a> themselves as having the <a href="https://www.coles.com.au/about-coles/community">health</a> of the community at heart. And in the middle of a pandemic, we’re all grateful supermarkets are still open and, for the most part, the shelves are well stocked. </p>
<p>But our <a href="https://www.insideourfoodcompanies.com.au/supermarkets">new report</a>, published today, finds our supermarkets are overwhelmingly pushing junk foods on us rather than healthy foods.</p>
<p>They have more promotional displays and more special offers for the least healthy food options, and they tempt us to buy unhealthy products at checkouts.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/QrPBbjkdpUY?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<h2>Our research – what we did</h2>
<p>For our report, we surveyed more than 100 Coles, Woolworths, Aldi and independent stores in Australia.</p>
<p>In each store, we measured the shelf space allocated to different foods and how they are promoted at checkouts and end-of-aisle displays. We also looked at discounts on healthy compared with unhealthy items.</p>
<p>We categorised the healthiness of food and drinks based on the <a href="https://www.eatforhealth.gov.au/sites/default/files/content/n55_australian_dietary_guidelines.pdf">Australian Dietary Guidelines</a>, which classify foods as “five food groups” foods (healthy) and “discretionary” foods (unhealthy).</p>
<p>We analysed the findings by supermarket chain and by the level of disadvantage of the area in which each store was located.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/supermarkets-put-junk-food-on-special-twice-as-often-as-healthy-food-and-thats-a-problem-121808">Supermarkets put junk food on special twice as often as healthy food, and that's a problem</a>
</strong>
</em>
</p>
<hr>
<h2>Promotion of unhealthy food and drinks at checkouts</h2>
<p>We found 90% of staff-assisted checkouts included displays of unhealthy food and drinks. These displays typically included chocolate, confectionery, soft drinks and energy drinks.</p>
<p>The food and drinks on special at checkouts was also 7.5 times more likely to be unhealthy than healthy.</p>
<p>These results show how checkout displays encourage impulse buys of unhealthy snacks. This is in stark contrast to displays near the entrance of most stores, where fresh fruit and vegetables feature prominently.</p>
<h2>Unhealthy food is promoted all over the store</h2>
<p>The displays at the end of aisles, particularly those in high-traffic areas nearest the front of the store, are where supermarkets put their <a href="https://www.sciencedirect.com/science/article/abs/pii/S0969698917307257">biggest promotions</a>.</p>
<p>Our survey found that of all end-of-aisle displays with food and drinks, 80% had at least one type of unhealthy item. In Coles, Woolworths and independent supermarkets, there was twice as much unhealthy food as healthy food on display.</p>
<p>Around two-thirds of all specials on food and drinks were for unhealthy items. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1048&fit=crop&dpr=1 600w, https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1048&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1048&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1317&fit=crop&dpr=1 754w, https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1317&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/335252/original/file-20200515-77243-2loxmp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1317&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">End-of-aisle displays are more likely to advertise unhealthy foods than healthy foods.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>It matters where you shop</h2>
<p>On the measures we looked at there was little difference between Coles and Woolworths.</p>
<p>But Aldi stores were quite different. They had fewer promotional displays and discounts overall. This means unhealthy food is not being pushed on Aldi shoppers in the same way it is at the other major chains.</p>
<p>Independent stores varied widely. On average, they were no better than Coles or Woolworths.</p>
<p>But the two healthiest stores in our study were both independent stores with abundant fresh food, and few promotional displays for unhealthy food and drinks. This tells us a healthier supermarket environment is possible.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/dont-be-fooled-supermarkets-dont-have-your-health-at-heart-28341">Don't be fooled, supermarkets don't have your health at heart</a>
</strong>
</em>
</p>
<hr>
<h2>It also matters where you live</h2>
<p>We found supermarkets allocate more shelf space to unhealthy food and drinks (chips, chocolate, confectionery, sweet biscuits, soft drinks and energy drinks) compared with fresh and frozen fruit and vegetables.</p>
<p>Critically, this was more pronounced in stores located in more disadvantaged areas. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/334241/original/file-20200512-66719-1hkmc06.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Supermarkets in lower socioeconomic areas were found to display a higher proportion of selected unhealthy food and drinks.</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>People living with socioeconomic disadvantage have <a href="https://www.aihw.gov.au/getmedia/fe037cf1-0cd0-4663-a8c0-67cd09b1f30c/aihw-aus-222.pdf.aspx?inline=true">higher rates of diet-related diseases</a> and are <a href="https://www.cambridge.org/core/journals/public-health-nutrition/article/association-between-socioeconomic-position-and-diet-quality-in-australian-adults/48106AB58906A3D5A4B3534D670A9F4A">less likely</a> to eat healthy, nutritious food. They are also more likely to <a href="https://www.cambridge.org/core/journals/public-health-nutrition/article/discretionary-food-and-beverage-consumption-and-its-association-with-demographic-characteristics-weight-status-and-fruit-and-vegetable-intakes-in-australian-adults/689B3A1CE7E8B21680775430DED5623B">over-consume unhealthy food</a>. </p>
<p>The extent to which unhealthy food is pushed at us shouldn’t depend on the suburb in which we live.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-we-get-sucked-in-by-junk-food-specials-in-supermarkets-66392">How we get sucked in by junk food specials in supermarkets</a>
</strong>
</em>
</p>
<hr>
<h2>We need higher standards in Australian supermarkets</h2>
<p>The COVID-19 pandemic has highlighted the importance of supermarkets in our daily lives.</p>
<p>But when the pandemic is finally over, we will still have an <a href="https://onlinelibrary.wiley.com/doi/abs/10.5694/j.1326-5377.2010.tb03503.x">expensive national health problem</a> resulting from our unhealthy diets and high levels of <a href="https://www.aihw.gov.au/reports-data/behaviours-risk-factors/overweight-obesity/overview">obesity</a>.</p>
<p>Supermarkets can be part of the solution to that problem. They can help all Australians move towards healthier, more nutritious diets.</p>
<p>Some improvements could include:</p>
<ul>
<li><p>providing healthier checkouts that do not display chocolate, confectionery and sugary drinks</p></li>
<li><p>replacing unhealthy items with healthy food and drinks at end-of-aisle displays</p></li>
<li><p>allocating less shelf space to unhealthy items</p></li>
<li><p>offering fewer discounts on unhealthy food and drinks</p></li>
<li><p>ensuring stores in the most disadvantaged areas do not disproportionately market unhealthy food and drinks, in comparison to stores in other areas.</p></li>
</ul>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/big-supermarkets-big-on-junk-food-how-to-make-healthier-food-environments-20347">Big supermarkets, big on junk food: how to make healthier food environments</a>
</strong>
</em>
</p>
<hr>
<p>If supermarkets don’t take action to improve their practices, the government should be ready to step in to ensure the supermarket environment encourages the selection of healthier options.</p><img src="https://counter.theconversation.com/content/138292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Sacks receives funding from the National Heart Foundation of Australia, the National Health and Medical Research Council (NHMRC), the Canadian Institutes of Health Research (CIHR) and the World Health Organization (WHO). Gary Sacks is an academic partner on a healthy supermarket intervention trial that includes collaborations with Australian local government and IGA supermarkets.</span></em></p><p class="fine-print"><em><span>Adrian Cameron has received funding from the National Heart Foundation of Australia, the National Health and Medical Research Council (NHMRC), the Australian Research Council (ARC), Canadian Institutes of Health Research (CIHR) and the World Health Organization (WHO). He is an academic partner on a healthy supermarket intervention trial that includes collaborations with Australian local government and IGA supermarkets.</span></em></p><p class="fine-print"><em><span>Lily Grigsby-Duffy receives funding from a scholarship from the National Health and Medical Research Council (NHMRC) Centre for Research Excellence in Reducing Salt Intake Using Food Policy Interventions (APP1117300)</span></em></p><p class="fine-print"><em><span>Sally Schultz does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We surveyed over 100 Coles, Woolworths, Aldi and independent stores around Australia and found supermarkets are promoting unhealthy food much more often, and more prominently, than healthier products.Gary Sacks, Associate Professor, Deakin UniversityAdrian Cameron, Associate professor, and Associate Director of the Global Obesity Centre, Deakin UniversityLily Grigsby-Duffy, PhD candidate, Deakin UniversitySally Schultz, Research fellow, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160832019-04-29T12:14:20Z2019-04-29T12:14:20ZShopping trends mean blocking the big Sainsbury’s-Asda merger may not protect customers<figure><img src="https://images.theconversation.com/files/271449/original/file-20190429-194620-ka977c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Staying separate.</span> <span class="attribution"><span class="source">John David Photography / Shutterstock.com</span></span></figcaption></figure><p>The proposed merger of supermarkets Sainsbury’s and Asda is now off the table as the regulator <a href="https://theconversation.com/sainsburys-asda-merger-failed-big-bet-has-serious-strategic-consequences-116012">has ruled against it</a>, saying it would lead to higher prices for consumers. The merger would have created the largest supermarket in the UK in an already concentrated market where the market shares of the top four players add up to <a href="https://www.kantarworldpanel.com/en/grocery-market-share/great-britain">a whopping 68% of the total market</a>. </p>
<p>Under any other circumstance, it would have made a lot of sense to block a merger of this scale. But given the conditions at this time in food retail, stopping this deal won’t necessarily protect customers. There is fierce competition in the industry, ruling out the possibility of increasing prices.</p>
<p>Supermarkets have been hit by <a href="https://www.about.sainsburys.co.uk/investors/annual-report-2018">multiple disruptions</a> in the past couple of decades, and the traditional way of shopping for groceries in big stores has been declining, replaced by discount stores, convenience stores, and online shopping.</p>
<p>The biggest challenge comes from the new discounters like Aldi and Lidl. They put even the traditional UK discounters such as Wal-Mart’s Asda to shame with their hard-to-match low prices. The Aldi phenomenon has swept through the UK. It has opened numerous new stores since 1990, luring customers with aggressive prices, good quality products, and advertising that trumpets blunt price comparisons. </p>
<p>Among several factors that drive Aldi’s cost advantage is its no-frills, small store format, stocked mostly with own brand products. This gives the company the ability to work with and negotiate the best prices <a href="https://www.npr.org/sections/thesalt/2017/09/27/552384150/discount-grocers-aldi-and-lidl-give-u-s-stores-a-run-for-their-money?t=1556369139095">from their long-term suppliers</a>. Further savings are made by having customers do some of the work, such as opening boxes and taking carts back. And the product selection is very limited, with one or two choices for most products. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/271448/original/file-20190429-194606-4jdfll.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Supermarket disruptors.</span>
<span class="attribution"><span class="source">JFs Pic S. T / Shutterstock.com</span></span>
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<p>These days, Aldi and Lidl are no longer underdogs. Together, they command over 13% of the market, as the <a href="https://www.kantarworldpanel.com/en/grocery-market-share/great-britain">fifth- and seventh-biggest players in UK</a>. Their model is the antithesis of the mainstream supermarket business model, which is based on a large variety of products, alternative brand choices, customer service, and in some cases store ambience and experience. </p>
<h2>Changing habits</h2>
<p>While the traditional supermarket model hasn’t entirely lost its appeal, consumer expectations and shopping habits have changed in multiple ways. Today’s consumers prefer lower prices, but they also want high quality fresh produce and other products. They value convenience in shopping, but they also shop in multiple stores to get what they want. Increasing numbers are shopping online. But supermarkets still haven’t figured out the best way to respond to these disruptive changes. </p>
<p>When customers shop more locally and frequently, the large-format supermarkets outside of town and city centres no longer generate enough sales. The grocery business is a high-volume, low-margin trade where steady customer traffic matters. Without high sales volume and fast inventory turnover, supermarkets cannot cover their “fixed costs” like rent, technology and staff. Opening new convenience stores helps to reclaim the lost business but doesn’t compensate for diminishing large store margins. </p>
<p>When it comes to the steady growth of online food shopping, all major players offer this, but they often rely on the click-and-collect method, which has marginal profitability due to added labour costs. Highly-automated fulfilment centres are more efficient, but they require substantial investments upfront. </p>
<p>Adding up the loss of sales to convenience, discounters, and online, many traditional UK food stores are suffering from reduced profitability. </p>
<h2>Bold and risky</h2>
<p>Enter the Sainsbury’s-Asda merger. This was a <a href="https://theconversation.com/sainsburys-and-asda-merger-its-all-about-market-share-95822">bold and risky move</a> as it would have increased both companies’ exposure to retail disruption. But it would have also given the merged companies a stronger base to respond to discounters and the online shopping trend.</p>
<p>Food manufacturing firms have much <a href="https://www.forbes.com/sites/sageworks/2017/09/24/these-industries-generate-the-lowest-profit-margins/#6e91c608f49d">better profit margins</a> than supermarkets. So increasing their power against key suppliers is one way supermarkets are trying to survive. While this may not have enabled either company to match Aldi-Lidl prices, they could have narrowed the gap.</p>
<p>Sainsbury’s also planned to leverage Asda stores for Argos pickups, a catalogue retailer owned by Sainsbury’s. This would have helped them better use their big stores, while expanding the reach of Argos. Plus, a combined response to online sales would have created significant economies of scale when investing in the necessary infrastructure to meet customer demand for online shopping.</p>
<p>So blocking the Sainsbury’s-Asda deal may strengthen the hands of Aldi and Lidl. Perhaps that’s good news as they can grow and make their low prices available to more customers. But there may be other implications. </p>
<p>Customers today enjoy having the luxury of shopping at different types of stores. A rapid rise of new discounters and online models may not allow enough time for supermarkets to adapt and traditional store options may fade away as a result, reducing options for consumers in the future. </p>
<p>Even if they survive, an increasingly singular focus on price competitiveness and cost cutting can have other consequences. It can harm farmers and food producers with little power to negotiate, leading to the loss of small and midsize farms or putting added pressure on the environment and farm worker health. Plus, food quality may suffer under pressure to rapidly cut costs. </p>
<p>Aldi and Lidl have managed to achieve good environmental standards along with efficiency by working with their suppliers over a long period of a time, albeit for a relatively narrow range of products. If other players are pushed to match the cost advantages for a substantially larger range of products in a short time period, compromises in other important areas can happen. So more competition may not turn out to be better for consumers after all.</p><img src="https://counter.theconversation.com/content/116083/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yasemin Kor is affiliated with Cambridge Global Food Security Initiative. </span></em></p>Supermarkets have been hit by multiple disruptions in the past couple of decades and they are struggling to survive.Yasemin Kor, Beckwith Professor of Management Studies, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1003362018-09-04T04:23:46Z2018-09-04T04:23:46ZExplainer: can you copyright furniture?<figure><img src="https://images.theconversation.com/files/234722/original/file-20180904-41732-40zjei.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The on-paper designs for furniture belong to the designer, just like any other artists. But things get more complicated when designs become physical objects. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Furniture stores are often filled with designs that look similar to others. But is copying furniture legal, and should we feel bad about buying replicas?</p>
<p>Recently, interior designers <a href="https://www.news.com.au/lifestyle/home/interiors/customers-angered-by-retailer-pulling-wooden-stool-night-before-sale/news-story/107fe3c91829548e30625c812d1c592e">accused the supermarket Aldi</a> of copying an Australian designer’s stool in the launch of a new range of “luxe” furniture. Some, including the Design Institute of Australia, noted the stool’s similarities to designer Mark Tuckey’s eggcup stool, which retails for more than $550. Aldi withdrew its stool (priced at $69) on the day of the sale, citing quarantine issues and said it was <a href="https://www.facebook.com/ALDI.Australia/posts/2086722988051858">scheduled to return to stores</a> in late August. (There is no suggestion that Aldi has broken the law here). </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1019707020427972608"}"></div></p>
<p>In general, copying furniture designs that have not been registered in Australia is likely to be legal. This means that, in most circumstances when designers have not registered their work, businesses are able to sell, and Australian consumers are able to purchase, replica furniture without breaking the law.</p>
<h2>How designs are protected</h2>
<p>A designer of furniture, fashion or any other product will normally start out by creating a 2D drawing of their product. The drawing might be made by hand or using a computer or machine. This initial design is automatically protected under copyright law as an “artistic work”. For most types of artistic works, copyright lasts for the lifetime of the creator plus an additional 70 years. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228976/original/file-20180724-189310-dsnb2t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Furniture designers’ drawings will be protected under copyright automatically.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hand-designer-pen-designing-sketching-his-423583966?src=Yt3eMu9c0j5UsmLzv2Q3_g-1-12">Shutterstock</a></span>
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<p>Copyright law prevents a person from copying someone else’s work if they do not have permission or a legal excuse. Making a 3D reproduction of a 2D artistic work counts as “copying” under law. So a person who makes, for example, a physical 3D chair using a designer’s 2D design of that chair may be infringing copyright of that 2D artistic work. </p>
<p>However, there is an interesting feature of copyright law that applies only to designers. A designer will lose copyright protection in their 2D artistic work if it is “industrially applied”. </p>
<p>“Industrial application” is generally understood to mean that 50 or more copies of the 3D product deriving from the design are made and offered for sale. Any mass commercial production will therefore take the product outside of the scope of copyright law. </p>
<p>However, mass-designed products can be protected by Australia’s <a href="https://www.ipaustralia.gov.au/designs">designs system</a>. This system protects the visual appearance of a product. Unlike with copyright, designers must register their designs to be protected under law. </p>
<p>For a design to be registered, it must meet certain minimum requirements. Importantly, it must be new and visually distinctive. The novelty of a design is critical to protection. These requirements ensure that ordinary and unremarkable designs are not constrained by intellectual property law, but are free for people to make and sell.</p>
<p>How is this determined? An application for design registration is filed with and assessed by <a href="https://www.ipaustralia.gov.au/">IP Australia</a>, located in Canberra. It usually takes between three and 12 months to process an application, and costs around $300 to apply. Once registered, design protection lasts for five years, with the opportunity to renew registration for a further five years - so 10 years in total.</p>
<p>The <a href="http://pericles.ipaustralia.gov.au/adds2/adds.adds_namelist_search.paint_name_search">designs register</a> is searchable online. Our search did not reveal any designs registered to Mark Tuckey.</p>
<h2>Incomplete protection is deliberate</h2>
<p>There are important policy reasons why designers are not given complete protection under intellectual property law. For one, it is often difficult to determine what is an original design when aesthetics meets functionality - there are a limited number of ways to design a seat that people will actually want to sit on! Designs protection is limited so that consumers can affordably access practical products. </p>
<p>Designs law tries to balance a designer’s right to protect their product with the public’s right to access. Getting the balance right is tricky, and is likely to be under increasing pressure with the advent of 3D printing for the home.</p>
<p>It is now possible to <a href="https://www.sculpteo.com/blog/2018/02/21/3d-printed-furniture-appliances-of-the-future/">print replica furniture</a>, and this practice may become more popular as 3D printing technology becomes simultaneously more sophisticated and more widely available. This is likely to raise ongoing questions about the scope of designs protection under copyright and designs law, and whether the law is appropriately tailored to protect designers.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228977/original/file-20180724-76263-6mx6s5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The option of 3D printing your furniture brings about new headaches for copyright.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/3d-printer-printing-close-process-new-525745555?src=_smqNJDqkLScDs7JNEfXiQ-1-44">Shutterstock</a></span>
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<p>For Australian designers, the answer may not be stronger legal protection. First, we should ensure that the designs registration system is working effectively. Anecdotal reports suggest that the designs system is underused. We need to make sure that registration is affordable and accessible. Only then will we be in a position to know whether the protection offered by designs registration is enough. </p>
<p>For consumers, the good news is that replica furniture is likely to continue to be available in retail stores. There is certainly nothing illegal about <em>buying</em> replica furniture. Those with the budget to do so, however, may want to consider supporting local Australian designers of furniture and home crafts.</p><img src="https://counter.theconversation.com/content/100336/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kylie Pappalardo is a postdoctoral researcher on the ARC Discovery Project: "Inventing the Future: Intellectual Property and 3D Printing". </span></em></p><p class="fine-print"><em><span>Karnika Bansal does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How are furniture designers protected by law, and what is an ‘original design’ when aesthetics meets functionality?Kylie Pappalardo, Lecturer, School of Law, Queensland University of TechnologyKarnika Bansal, Research Assistant, Faculty of Law, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1006712018-08-01T20:18:54Z2018-08-01T20:18:54ZThe secret to Aldi’s success is choosing what not to do<figure><img src="https://images.theconversation.com/files/230173/original/file-20180801-136646-1n4n4e3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The key to Aldi's strategy is a severely limited range of products.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Dick Smith has laid <a href="https://www.dicksmithfairgo.com.au/wp-content/uploads/2018/07/25.7.18-DS-closure-of-Dick-Smith-Foods-both-letters.pdf">the blame</a> for closing his Australian-made processed food lines squarely at the feet of Aldi Australia. </p>
<p>He <a href="https://www.dicksmithfairgo.com.au/wp-content/uploads/2018/07/25.7.18-DS-closure-of-Dick-Smith-Foods-both-letters.pdf">accused</a> the German retailer of “extreme capitalism” and warned the CEOs of Woolworths and Coles that “unless your companies move towards [Aldi’s limited range and high proportion of private brands], you will very likely become uncompetitive”.</p>
<p>But this betrays a fundamental misunderstanding of Aldi’s strategy and the limits of its appeal in the Australian market.</p>
<p>An important element of Aldi’s strategy is a severely limited range of “preselected” products, overwhelmingly private brands. The company’s smaller range (some 1,500 store-keeping units as opposed to 20,000 to 30,000 in a large Coles or Woolworths outlet) <a href="https://www.thecasecentre.org/educators/products/view?id=106173">has several advantages</a> – in terms of store footprints, warehousing infrastructure and supplier discounts, to name a few.</p>
<p>A proportion of these savings are <a href="https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/cheapest-groceries-australia">passed on to consumers</a> to ensure their appeal with households wanting to stretch their shopping dollars further. </p>
<p>This strategy and disciplined execution propelled the company’s growth.</p>
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Read more:
<a href="https://theconversation.com/woolies-private-label-strategy-will-play-directly-into-the-hands-of-aldi-56914">Woolies private label strategy will play directly into the hands of Aldi</a>
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<p>From its first two stores in the Sydney suburbs of Marrickville and Bankstown, Aldi gradually expanded across the eastern seaboard. It was not until 2016 that Aldi started opening stores in South Australia and Western Australia. </p>
<p>These new territories promised significant growth opportunities while store openings in the established territories were largely restricted to gap-filling.</p>
<p><a href="http://www.roymorganonlinestore.com/Browse/Australia/Retail/Supermarket-Currency-Reports/Supermarket-Fresh-Food-Currency-Report.aspx">By 2018</a>, Aldi was operating more than 500 outlets around Australia and claiming roughly 13% of the Australian supermarket industry. Aldi’s gain in market share has overwhelmingly come at the expense of the smaller, independent supermarkets (IGA-affiliated as well as others).</p>
<p>Coles and Woolworths have chiefly <a href="https://theconversation.com/woolies-private-label-strategy-will-play-directly-into-the-hands-of-aldi-56914">responded</a> to Aldi through price cuts and by boosting their share of private brands. While competition in the Australian supermarket sector has increased, it remains a lucrative oasis in comparison to international markets.</p>
<h2>Low-hanging fruit is gone</h2>
<p>As its stores now span the entire nation, Aldi’s growth can be expected to slow down. The company is unlikely to “turn on” and overwhelm Coles and Woolworths, <a href="https://www.dicksmithfairgo.com.au/wp-content/uploads/2018/07/25.7.18-DS-closure-of-Dick-Smith-Foods-both-letters.pdf">as Smith predicts</a>, because of the inherent limitations of the Aldi formula.</p>
<p>Aldi has successfully appealed to a particular segment of the market. It is a segment of shoppers prepared to trade low prices (coupled with sound product quality) for a variety of conveniences offered by traditional supermarkets. These shoppers readily accept Aldi’s highly restrictive range of product, the lack of manufacturers’ brands, and austere stores with minimal service at the cash register or in store. </p>
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Read more:
<a href="https://theconversation.com/is-aldis-move-to-woo-cashed-up-shoppers-a-risk-42113">Is Aldi's move to woo cashed-up shoppers a risk?</a>
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<p>The company has also been successful in expanding this segment, by convincing a growing number of people to do at least part of their shopping with Aldi and accept the trade-off at the heart of its offering.</p>
<p>But the majority of Australian shoppers prefer to do (the bulk of) their shopping with the two incumbents (Coles and Woolworths <a href="https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-retailing/supermarkets-grocery-stores.html">who still account for more than two-thirds of the market</a>) as well as a shrinking number of independent supermarkets and a growing set of alternative sources such as farmers’ markets or subscription-based retailers (Costco).</p>
<h2>Strategy has limits</h2>
<p>Aldi exemplifies strategy scholar Michael Porter’s <a href="https://hbr.org/1996/11/what-is-strategy">dictum</a> that the essence of strategy is choosing what not to do. In embracing the “Aldi way”, the company has made hard strategic choices. Its strategy appeals to a sizeable segment of the Australian public. </p>
<p>But it’s turning away shoppers who value things other than what’s on offer at Aldi – larger choice, established brands, more service, plusher stores, in-store bakeries and delis or expanded fresh food sections. As a result, Aldi’s growth in Australia is going to reach its limits.</p>
<p>As far back as 2016, CEO Tom Daunt <a href="https://www.afr.com/business/retail/aldi-australia-gets-fresh-as-sales-exceed-7-billion-20161101-gsfels">acknowledged</a> that growth opportunities were slowing in existing territories. He also acknowledged the onset of cannibalisation between existing Aldi stores, a sure-fire indicator that their segment was becoming saturated:</p>
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<p>Increasingly those stores on the eastern seaboard are less often in virgin catchments and more often than not for the majority of those stores there is some impact on other existing Aldi stores.</p>
</blockquote>
<p>A <a href="https://www.smartcompany.com.au/industries/retail/aldi-stores-cannibalising-each-other-ubs/#.WoJgTNkpwa0.twitter">recent UBS report</a> also picked up the increase in cannibalisation among Aldi stores. UBS analysts suggested Aldi store cannibalisation in South Australia and Western Australia was reaching levels not far behind the more established territories.</p>
<p>This indicates that saturation might be achieved sooner in new markets, and puts <a href="https://www.theaustralian.com.au/business/companies/aldis-onslaught-on-australian-retail-may-be-slowing/news-story/566a105ec757dc85895e1f3a7799ec23">growth objectives</a> in these states in doubt.</p>
<p>Since its arrival in 2001, the company has benefited the Australian public by injecting much-needed competition into the local grocery retail scene, thereby boosting Australian consumers’ spending power. While its success is testimony to the appeal of the Aldi formula, growth will inevitably peter out and the company will not overrun Australia’s existing retail giants. </p>
<p>Aldi’s experience in Australia exemplifies the benefits as well as the limitations of clear and focussed strategy.</p><img src="https://counter.theconversation.com/content/100671/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>ALDI appeals to a particular market segment. It is unlikely to abandon it to go after Woolworths and Coles.Tom Osegowitsch, Senior Lecturer, International Business and Strategic Management, The University of MelbourneAngela McCabe, Lecturer, Management, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/959822018-05-03T10:53:26Z2018-05-03T10:53:26ZKarl Marx wouldn’t agree that worker power has been killed by the 21st century<figure><img src="https://images.theconversation.com/files/217345/original/file-20180502-153895-1lo8if4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/germany-circa-1975-karl-marx-18181883-99218681?src=GA0u-MxgZ2P4Bpfanb4bfw-1-11">Georgios Kolidas</a></span></figcaption></figure><p>It is remarkable for an economic thinker and political activist that 200 years after their birth, millions are still avidly discussing their work. Yet Karl Marx’s <a href="https://www.marxists.org/archive/marx/works/1867-c1/">Capital</a> continues to influence every new generation.</p>
<p>In an era of anti-globalisation protests and the <a href="http://www.naomiklein.org/shock-doctrine">movement</a> against the 1%, Marx’s analysis continues to be relevant – he explains how the capitalist system goes hand in hand with aggressive competition and innovation, and why this leads to poverty, crisis and eventually revolution. He brilliantly describes growing wealth, the worsening conditions of labour and the necessity for a different society. </p>
<p>These insights apply as much to the 21st century as the 19th. We see the same capitalist landscape of old incumbents constantly under pressure from new challengers – and also the same destructiveness. </p>
<p>Some political scientists <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674006713&content=reviews">argue that</a> the internet and particularly the <a href="https://theconversation.com/why-the-idea-of-good-work-in-a-gig-economy-remains-a-distant-ideal-92117">gig economy</a> have fundamentally changed the nature of work. Capitalism has become so dominant over labour, they argue, that old bonds between workers such as class and solidarity are increasingly meaningless. </p>
<p>On this analysis, worker action and revolution are off the agenda. And jobs likely to get automated in future – that’s 80% of posts in transport, warehousing and retail logistics <a href="https://www.oxfordmartin.ox.ac.uk/publications/view/2581">according to one prediction</a> – are seen as part of the same trend. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=464&fit=crop&dpr=1 600w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=464&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=464&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=583&fit=crop&dpr=1 754w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=583&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/217482/original/file-20180503-153873-pth62v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=583&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Master and servant.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/human-business-robotic-hand-concept-robot-635324807?src=7xTDDwvhyU-WUninJoEOig-1-34">zenzen</a></span>
</figcaption>
</figure>
<p>But Marx had a different perspective. Instead of thinking class solidarity would be destroyed in this way, he <a href="https://bookmarksbookshop.co.uk/view/38500/Deciphering+Capital%3A+Marx%27s+Capital+and+its+destiny">thought</a> capitalism recreated the relationship between labour and capital in ever deeper forms. <a href="https://www.marxists.org/archive/marx/works/1865/value-price-profit/">Commenting on</a> how machinery being introduced in his era led to skilled jobs being replaced by unskilled ones, he said: </p>
<blockquote>
<p>The working class gains recruits from the higher strata of society: a mass of petty industrialists and small rentiers are hurled down into its ranks and have nothing better to do than urgently stretch out their arms alongside those of the workers. Thus a forest of uplifted arms demanding work becomes ever thicker, while the arms themselves become ever thinner.</p>
</blockquote>
<h2>Inherent instability</h2>
<p>For Marx, the very dynamism that saw capitalism expand also caused its downfall. Companies have no choice, he believed, but to compete with one another in a war for survival. They seek to defeat their rivals by lowering the prices of their goods – thus, for example, a computer today is far cheaper than it was yesterday. </p>
<p>But this means that there is a tendency towards a falling rate of profit for each player. To offset this and to make their goods even cheaper, the capitalists either become more concentrated through mergers and acquisitions, or by driving down wages through deskilling jobs and making people redundant. As Marx <a href="https://www.marxists.org/archive/marx/works/1865/value-price-profit/">wrote</a>, it becomes a competition between “the generalists, the capitalists … as to who can discharge most soldiers of industry”. </p>
<p>And this, he thought, was the inherent problem. <a href="https://publishing.cdlib.org/ucpressebooks/view?docId=ft367nb2h4;query=;brand=ucpress">Like</a> the classic economists of his time, Marx believed in a labour theory of value – the idea that the value of a product should be based on the amount of labour that has gone into it. The more the capitalists sought to protect their profitability, the more they undermined the value of the products they were creating with labour power. </p>
<p>The Sainsbury/ASDA merger is the perfect example. These two supermarkets’ <a href="https://theconversation.com/sainsburys-and-asda-merger-its-all-about-market-share-95822">motivation</a> is not the high levels of profits of both companies but the opposite – the squeeze on profits both companies face from Amazon on the one hand and low-cost retailers like Lidl and Aldi on the other. </p>
<p>As the battle for thinner and thinner profits wears on, Marx argued that the capitalists become ever more estranged from a burgeoning working class. The workers are both increasingly frustrated as jobs became more and more stultifying, and facing rising levels of unemployment. In time, competition to accumulate more wealth creates systemic crisis. </p>
<p>Companies like Deliveroo and Uber are not really a means of thwarting worker power at all – they <a href="https://socialistworker.co.uk/art/43275/Strikes+deliver+victory+and+show+speedy+action+works">just lead</a> to collective action by workers seeking to address the imbalance between capital and labour. </p>
<p>Marx therefore helps us make sense of modern power relations after all. Then, as now, there is no contradiction between capitalism and crisis: it is a process of historical development and economic transition within the system. </p>
<p>I would argue that the lasting legacy of Marx 200 years after his birth comes from the conclusion he and Friedrich Engels drew in their 1848 publication <a href="https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch04.htm">The Communist Manfesto</a>:</p>
<blockquote>
<p>The proletarians have nothing to lose but their chains. They have a world to win. Workers of all countries unite.</p>
</blockquote><img src="https://counter.theconversation.com/content/95982/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carlo Morelli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some say the gig economy is capitalism’s final victory, but maybe it’s not.Carlo Morelli, Senior Lecturer in Business and Economic History, University of DundeeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/929962018-03-07T05:25:15Z2018-03-07T05:25:15Z‘Down down’ and ‘cheap cheap’ are gone gone: why supermarkets are moving away from price<figure><img src="https://images.theconversation.com/files/209274/original/file-20180307-146691-1t7au5j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Coles was once the market leader thanks to its 'down down' low pricing marketing. </span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>On January 26, 2011, Coles fired the first shot in what would soon be dubbed the <a href="http://localejournal.org/issues/n2/Locale%20n2%20-%2007%20-%20Keith.pdf">“supermarket price wars”</a> by reducing the price of its own-brand milk to A$1 per litre. Woolworths fired back, triggering seven years of intense price competition. </p>
<p>But now Coles has waved the white flag, indicating a move away <a href="http://www.afr.com/business/retail/coles-shows-its-softer-side-as-living-costs-bite-20180306-h0x2gc">from price-based marketing</a>, to a focus on other attributes, such as sustainability, local produce and community. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/ybo2S0R0XEk?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Coles’ new ad campaign.</span></figcaption>
</figure>
<p>Research shows if price is the main selling point, <a href="https://www.canstarblue.com.au/food-drink/stores/supermarkets/">shopper loyalty decreases</a> and customers become more conscious of price. Price wars are also <a href="https://theconversation.com/predicting-the-last-brand-standing-in-the-supermarket-price-wars-32556">costly for retailers</a>.</p>
<p>While operational costs (wages, rent, bills) remain fixed or go up, prices can’t keep coming down. You eventually run out of margin.</p>
<p>Coles recent <a href="http://www.wesfarmers.com.au/docs/default-source/asx-announcements/2018-half-year-results-announcement.pdf?sfvrsn=0">half yearly results</a> reflect this, with a drop in earnings of 14.1% from A$920 million to A$790 million. </p>
<p>In contrast, Woolworths announced an 11.1% increase in earnings for <a href="https://www.woolworthsgroup.com.au/icms_docs/189600_2018-half-year-results-presentation.pdf">their supermarket business</a>. But Woolworths dropped their “cheap, cheap” price cutting campaign <a href="https://mumbrella.com.au/woolworths-ditches-cheap-cheap-in-favour-of-new-always-at-woolworths-tagline-325378">nearly two years ago</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/down-down-but-not-different-australias-supermarkets-in-a-race-to-the-bottom-48151">Down, down but not different: Australia's supermarkets in a race to the bottom</a>
</strong>
</em>
</p>
<hr>
<p>Other retailers also get caught in the cross fire of price cutting. Case in point is Aussie Farmers Direct, which fell into administration this week <a href="https://www.aussiefarmers.com.au/">saying they were</a>:</p>
<blockquote>
<p>…no longer able to compete against the domination of the major two supermarkets.</p>
</blockquote>
<p>While it may be overly simplistic to blame the two big supermarkets for the downfall of Aussie Farmers Direct, price conscious consumers and thin grocery margins certainly contributed. </p>
<h2>How this strategy came about</h2>
<p>Supermarkets are now looking beyond price to stand out. </p>
<p>Both Coles and Woolworths are very similar in the brands they offer, prices, layouts, weekly specials and online channels. The move away from price gets shoppers thinking about what is unique to each chain. </p>
<p>So, rather than price, the focus has shifted to <a href="https://www.woolworthsgroup.com.au/page/media/Press_Releases/Free_Fruit_for_Kids_at_Woolworths/">service quality, social programs</a> and <a href="https://www.coles.com.au/sfs/assets">connecting with the community</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/unit-pricing-saves-money-but-is-the-forgotten-shopping-tool-61379">Unit pricing saves money but is the forgotten shopping tool</a>
</strong>
</em>
</p>
<hr>
<p>Shoppers who are continually exposed to loyalty program logos, may eventually stop noticing these logos, or “switch off”. This is because of a behavioural tendency called <a href="https://www.verywellmind.com/what-is-habituation-2795233">“habituation”</a>. </p>
<h2>What these new strategies are trying to sell</h2>
<p>So, if Coles are no longer selling themselves on price, what are they selling?</p>
<p>Coles’ new approach is more subtle, selling themselves through aspirational stories and employing <a href="https://www.designsociety.org/publication/34585/a_theory_of_affective_experience">classic advertising techniques</a> to do it. </p>
<p>These techniques are used in advertising to convey positive feelings and emotions associated with a particular experience. A simple way to achieve this in advertising is to feature people telling their own stories – as seen in the new Coles advert launched this week. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/M3bbQGSw1kg?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Woolworths ad campaign.</span></figcaption>
</figure>
<p>With the Commonwealth Games near, both supermarkets are also featuring sports stars in their marketing. Woolworths <a href="https://mumbrella.com.au/woolworths-features-apple-hungry-wheelchair-athlete-in-first-commonwealth-games-ads-500319">new campaign features</a> athletes and their connection with fresh food, positions the company, once again, as “Australia’s Fresh Food People”.</p>
<p>Meanwhile, Coles have partnered with Uncle Toby’s for their <a href="https://www.coles.com.au/sfs/assets">Sports for Schools</a> campaign. Their advertisements feature an array of young, fit, attractive and successful athletes linking the athletic success with the purchase of products from Coles.</p>
<p>By moving away from price and focusing on a story telling strategy, both supermarkets can engage consumers with a process called <a href="https://books.google.com.au/books?id=gWfVlJAp31wC&pg=PA292&lpg=PA292&dq=Internalization+endorser%E2%80%99s+position+on+an+issue+as+their+own&source=bl&ots=etMsCJ8v2H&sig=SSVql3GEe9bYINgh1T0TDjOYjA8&hl=en&sa=X&ved=0ahUKEwiG86fNmNnZAhWoiVQKHRkmCXsQ6AEIJzAA#v=onepage&q=Internalization%20endorser%E2%80%99s%20position%20on%20an%20issue%20as%20their%20own&f=false">“internalisation”</a>. This is where people accept the endorser’s position on an issue as their own. </p>
<p>Internalisation is a powerful psychological mechanism because even if the source used in the campaign is forgotten, the internalised attitude usually remains. Price doesn’t create this effect. </p>
<p>While food prices won’t necessarily go up any time soon, consumers shouldn’t expect to see any further significant price drops. Instead, Coles and Woolworths will draw attention to other important attributes. </p>
<p>Faced with the expansion of Aldi <a href="https://corporate.aldi.com.au/fileadmin/fm-dam/pdf/Press_Release/2016/ALDI_Media_Release_2016_Business_Update_311016__for_website__11_.pdf">across South Australia and Western Australia</a> and <a href="https://www.smartcompany.com.au/industries/retail/kaufland-australia-hiring-local-staff/">the entry of German supermarket Kaufland</a>, Coles has recognised they can’t keep fighting a battle on price alone.</p><img src="https://counter.theconversation.com/content/92996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Coles plans to compete with competitors by moving away from low prices to a focus on other attributes, such as sustainability, local produce and community.Gary Mortimer, Associate Professor in Marketing and International Business, Queensland University of TechnologyLouise Grimmer, Lecturer in Marketing, Tasmanian School of Business and Economics, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/925402018-03-01T12:18:42Z2018-03-01T12:18:42ZCopycat products: ‘living dangerously’ with intellectual property<figure><img src="https://images.theconversation.com/files/208286/original/file-20180228-36683-1y3eh9d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shopper-pushes-trolley-along-supermarket-aisle-590873999?src=kQ13cXp5hZtLbuqLo5uZMQ-1-33">Shutterstock/1000words</a></span></figcaption></figure><p>Copycat products look very similar to the brand leader. In fact, their success relies wholly on our familiarity with the original. Copycats exploit the hard-won recognition of the brand leader, often built up over many years of investment in marketing and product development. In doing so, these products sometimes earn themselves the unflattering epithet “<a href="https://www.contagious.com/blogs/news-and-views/opinion-the-rise-and-fall-of-parasitic-brands">parasitic brands</a>”.</p>
<p>But they also provide great value: a very similar product, usually at a lower price. Certain retailers, <a href="https://www.telegraph.co.uk/business/2017/07/07/aldi-lidl-have-wooed-british-shoppers-top-5-discounter-tactics/">for example Aldi</a>, excel at the copycat method and these products now make up a significant portion of their portfolio. We may raise a wry smile at their chutzpah or admire their audacity when we see such striking similarities between the original and the copycat. But these “lookalikes” raise interesting questions about where the line is between fair competition and infringement of another’s intellectual property.</p>
<p>Matters came to a head in the 2014 case of <a href="https://www.lawgazette.co.uk/law-reports/passing-off/5041531.article">Moroccanoil Israel Limited v Aldi Stores Limited</a> where the claimant – the manufacturer of a hair oil called “Moroccanoil” hair oil – sued Aldi for its sale of a similar product named “Miracle oil”. The claimant’s case was that Aldi’s Miracle Oil was so similar to Moroccanoil that shoppers would confuse the two and assume that they were made by one single manufacturer or that there was at least a “trade connection” between them.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208288/original/file-20180228-36696-118sje6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Aldi has been taken to court over its product branding.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/swansea-uk-may-2016-commercial-sign-691332811?src=W75E4eULvun9tTVzfra5tA-1-0">Shuterstock/jax10289</a></span>
</figcaption>
</figure>
<p>Aldi and MIL clashed again over hair oil in 2017, this time <a href="https://www.lexology.com/library/detail.aspx?g=7b5bc326-8c8b-43eb-88aa-5a0b5a8b31dd">in the Australian courts</a>. On this occasion, MIL claimed trademark infringement – a stronger basis on which to assert protection. However, once again the courts did not find evidence of deception or conduct likely to mislead or confuse consumers and dismissed the claim. Undeterred, MIL appealed the decision and in December 2017 succeeded in obtaining <a href="https://www.lexology.com/library/detail.aspx?g=7b5bc326-8c8b-43eb-88aa-5a0b5a8b31dd">an injunction against the German supermarket chain</a>.</p>
<p>This was based on MIL’s contention that Aldi’s claims over the performance of its oil and its use of the term “naturals” in the name were misleading – a rather different argument to one founded in asserting MIL’s intellectual property rights.</p>
<h2>Intentionally similar</h2>
<p>There was no denying the similarities between the products – even Aldi <a href="http://www.bailii.org/ew/cases/EWHC/IPEC/2014/1686.html">admitted as much</a>. In this case, as with so many of its copycat products, Aldi had intentionally set out to create a product that was so similar to the original that shoppers would immediately think of the original when they saw the copycat. This association would be essential in communicating the similarities between the products in their key features and in influencing the consumer to make the purchase.</p>
<p>Aldi sells “Norpak” rather than “Lurpak”. The names are similar and so is the packaging and theme. Consumers understand that Norpak isn’t just butter but it’s a butter that bears strong similarities to the key distinctive characteristics of Lurpak. However – and this is important – the courts have so far ruled that consumers are not confused between the brand and the copycat. They are not misled into thinking that they are made by the same company and they do not generally buy the copycat while mistaking it for the other. </p>
<p>How courts protect the intellectual property of brand owners matters because those who invest, innovate and create markets need to know that their ideas will generate an adequate return. On the other hand, asserting intellectual property rights can be an effective way <a href="https://www.slaughterandmay.com/media/2536585/the-eu-competition-rules-on-intellectual-property-licensing.pdf">to stifle competition</a> and provide an unfair advantage.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=321&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=321&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=321&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=404&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=404&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208289/original/file-20180228-36674-kpcx5l.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=404&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Aldi is quite happy to refer to the similarities with other brands in public.</span>
<span class="attribution"><a class="source" href="https://twitter.com/AldiUK/status/968533209909784579">Twitter</a></span>
</figcaption>
</figure>
<p>Given the scale of the issue and the <a href="https://www.theguardian.com/money/blog/2009/may/11/copycat-products-british-brands">number of brands affected</a> – from Stella Artois lager and Penguin biscuits to Fairy washing up liquid – it is perhaps surprising that brand owners aren’t more forthright. There appears to be an equanimity between the copycats and brand owners who will have watched the MIL litigation with a keen eye.</p>
<p>There are commercial considerations here too. Brand owners may be loath to take on supermarkets who they rely on to sell their products. It may be that shoppers who buy the copycat would have no intention of buying the original, this is especially true where there is a very sharp difference in price between the products. Moroccanoil costs £30 whereas Aldi’s Miracle Oil is sold for £3.99. Similarly Jo Malone candles cost £45 whereas the Aldi “Luxury Candles at Affordable Prices” retail for £4. Such a difference in price supports the copycat’s argument that shoppers are unlikely to confuse the two.</p>
<p>The price difference with foods is much smaller. Here the copycats claim that they provide healthy competition that exerts a downward pressure on the prices of all products. Rather than competing with the original, a copycat brand may in fact create its own market. While that doesn’t directly benefit the brand owner, it may provide some welcome exposure and a secondary market for the original. </p>
<p>The legal position seems entirely fluid and it’s impossible to predict the outcome of future action. For now, I expect that the copycats will – in the words of the judge presiding over the Moroccanoil case – continue to “<a href="http://www.bailii.org/ew/cases/EWHC/IPEC/2014/1686.html">live dangerously</a>”.</p><img src="https://counter.theconversation.com/content/92540/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ajay Patel does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>‘Parasitic’ or copycat brands which mimic famous names are creating a market place of their own but they are treading on thin ice when it comes to copyright and intellectual property law.Ajay Patel, Senior Lecturer in food law , Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/728442017-03-06T19:24:42Z2017-03-06T19:24:42ZCompany results: how competition is transforming Australia’s retail sector<figure><img src="https://images.theconversation.com/files/158405/original/image-20170225-22981-ucf0nc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Aldi's decidedly Germanic expansion strategy continues to eat into Woolworths’ earnings.</span> <span class="attribution"><span class="source">AAP/Lukas Coch</span></span></figcaption></figure><p>Several pressures are emerging in the Australian economy that are making business competition more unpredictable and challenging. Three examples in the retail sector, as evidenced by recent half-year financial results, are the emergence of new competitors, Australia’s changing tastes, and disruptive technologies.</p>
<h2>More investment extending overcapacity?</h2>
<p>Incumbent firms, when confronted by agile new entrants, face some tough choices. In some respects the best way to counter new entrants with better business models is to change and expand the way you operate. For myriad reasons, this is usually impossible.</p>
<p>What firms generally do is try to replicate the new entrants’ approaches within their own business. Qantas pulled this off fairly well with Jetstar: it built a low-cost airline to counter Virgin’s emergence in Australia. But large grocery retailers Coles and Woolworths, facing a similar threat in their sector, are struggling to counter the threat posed by new entrants.</p>
<p>One of these new entrants is Aldi. Its decidedly Germanic expansion strategy continues to eat into Woolworths’ earnings. <a href="http://www.woolworthsgroup.com.au/icms_docs/186045_half-year-results-announcement.pdf">In Woolworths’</a> near-A$19 billion food business, sales were up by more than A$500 million while earnings declined by around A$130 million in the half-year to December 31, 2016.</p>
<p>One interesting statistic in Woolworths’ results was the decline in sales per square metre for the Australian food division from A$16,251 to A$15,927. This is a decline of just over 2%.</p>
<p>In the context of higher real sales numbers, this shows Woolworths is growing its retail space quickly. There’s evidence of this by the growing number of smaller inner-city stores, and new stores in the capital cities’ urban fringes.</p>
<p>This can be contrasted with Aldi’s smaller stores and relatedly simpler and more agile logistics arrangements. This particular measure shows how Woolworths’ legacy store structures and leases continue to hold back any fundamental turnaround in profitability – and why perhaps Woolworths’ landlords should be worried.</p>
<p>The conundrum for the likes of Woolworths, Metcash (supplier to IGAs) and Coles is that they are driven to lease new, generally smaller-format, stores to retain customer patronage, but moving out of their older sites is rarely feasible. As such, by trying to refresh their retail locations they are also adding more and more floorspace to a business where floorspace is driving less in sales.</p>
<p>The problem is that Woolworths is adding more retail capacity to a sector that is approaching saturation, with a rapidly growing competitor in Aldi. As such costs are increasing and margins are declining. </p>
<p>This is a classic economic imbroglio: firms see such innovative expansions as a means to solve their problems, but in many ways it makes those problems worse.</p>
<h2>Changing tastes upend value chain arrangements</h2>
<p>There is more to the story of a tougher retail environment than Aldi. Changes in what Australians are buying at the checkout is impacting supply chain arrangements significantly, and tilting profits to producers of higher quality and more healthy foods – and away from retailers. </p>
<p>As our national average girth expands, there is evidence that Australians are starting to change their ways in relation to heavily sugared grocery mainstays like soft drinks, sweet biscuits and the like.</p>
<p>This is evidenced by <a href="http://www.asx.com.au/asxpdf/20170222/pdf/43g5vs32tdr8sy.pdf">Coca-Cola Amatil’s tough result</a>. Its sales volumes were down by 2.1%, while revenues were down by 3.4%. This shows Australians are drinking less and paying less for their products. The squeeze was more acute for “sparkling beverages”: its volumes were down 4.7%.</p>
<p>While better-quality and healthier food is great news for Australia’s health, it is not so great for our grocery retailers. The decline of high volume consumer staples like chips and soft drinks is bad news for retailers, which use such products to draw in customers. This means retailers have to be more cost competitive and margin-sensitive across the complete business, not just in the drawcard products.</p>
<p>The flipside of this can be seen in the listed fruit-and-vegetable producer Costa Group, Australia’s largest grower and packer of fresh fruit and vegetables. <a href="http://investors.costagroup.com.au/Investor-Centre/?page=asx-announcements">Its results</a> showed sales up by 9% and earnings up by 26.6% year on year.</p>
<p>Since its listing in 2015, Costa’s share price has increased from A$2.25 to more than A$3.50. Its stronger margins since listing is a sure sign that, as a supplier to grocers, it is getting a stronger share of the food value chain – at the supermarkets’ expense.</p>
<h2>Innovation is disrupting business models</h2>
<p>Technological innovation <a href="https://en.wikipedia.org/wiki/Joseph_Schumpeter">drives waves</a> of creative destruction in economies allowing firms to continually revolutionise and competitively recreate themselves. Economist Joseph Schumpeter noted that economies progress through such innovation, albeit at the expense of firms left behind by the new innovators.</p>
<p>This is nowhere better illustrated than among Australia’s pizza retailers, where <a href="http://www.asx.com.au/asxpdf/20170215/pdf/43g0bb360j4z9z.pdf">Domino’s</a> ascendancy is close to complete. In its recent <a href="http://www.asx.com.au/asxpdf/20170215/pdf/43g0bb360j4z9z.pdf">results</a>, profits were up by more than 30% year-on-year. </p>
<p>As a retailer, Domino’s has taken command of its market segment through innovation, IT development and marketing in an unprecedented manner.</p>
<p>Illustrative of this is <a href="http://www.smh.com.au/business/retail/dominos-pizza-enterprise-is-set-on-a-3minute-pizza-and-2000-new-stores-20160404-gnye7k.html">its 3/10 project</a>, which aims to have pizzas for pickup available in three minutes or home-delivered in ten. Innovations such as this have left Domino’s competitors in its wake.</p>
<p>Even this market hero, however, has clay feet. Domino’s share price has declined sharply recently, in part due to a series of <a href="http://www.smh.com.au/business/retail/dominos-scandal-franchisees-selling-visas-20170211-guau8x.html">scandals</a> ranging from alleged immigration fraud to widespread <a href="http://www.smh.com.au/business/workplace-relations/dominos-pizza-workers-kept-in-the-dark-about-underpayment-for-almost-two-years-20170214-gucq1f.html">underpayment of workers</a>.</p>
<p>In terms of technology-based disruption, more is on the way. Innovators like Amazon have signalled an interest in moving heavily into the Australian economy, expanding its e-commerce model into groceries. </p>
<p>Its <a href="https://www.amazon.com/b?node=16008589011">Amazon Go</a> technology and business model, where customers walk in, take what they want, and walk out (with goods billed automatically to the customer’s account) is intriguing. </p>
<p>Innovations such as this promise to disrupt retail as much as platform-based innovators like Uber have <a href="https://theconversation.com/when-uber-is-legal-the-taxi-industry-will-have-nowhere-to-hide-48820">disrupted taxis</a>.</p>
<p>Amazon’s mainstay is general e-commerce. In the <a href="http://www2.census.gov/retail/releases/historical/ecomm/16q4.pdf">US,</a> e-commerce accounts for 8.3% of retail sales, while in <a href="http://business.nab.com.au/nab-online-retail-sales-index-june-2016-17897/">Australia</a> the figure is around 6.8%. In both markets e-commerce is experiencing double-digit percentage growth. It is chipping away at the fundamental economics of traditional retailers like Myer, which continues to struggle.</p>
<h2>Batten down</h2>
<p>Taken together, the retail sector will continue to be a tough place for incumbents to thrive. </p>
<p>Innovators entering without the legacies of outmoded business models and with the benefit of new technology will continue to usurp incumbent firms. </p>
<p>For consumers, choice and convenience will continue to emerge. For incumbents unable to deliver on these outcomes, the future is bleak.</p><img src="https://counter.theconversation.com/content/72844/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For consumers of Australia’s retail sector, choice and convenience will continue to emerge. For incumbents unable to deliver on these outcomes, the future is bleak.John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/677742016-10-27T06:16:30Z2016-10-27T06:16:30ZPhantom brands haunting our supermarket shelves as home brand in disguise<p>There was a time when shoppers could easily differentiate between supermarket private labels and proprietary branded products, however <a href="http://foodstrategy.co.uk/brands-aldi-crossroads/">new “phantom brands”</a> appearing on supermarket shelves are clouding the waters. These are private supermarket label products without any reference to the supermarket’s brand or logo.</p>
<p>Despite significant improvements in the quality of private label ranges, supermarkets still face the challenge convincing customers of value perceptions. While supermarket private label ranges generally offer low price; low price is <a href="http://www.marketing91.com/price-quality/">frequently associated with lower quality</a>, and therefore less value.</p>
<p><a href="https://www.marketingweek.com/2014/08/21/where-next-for-tescos-venture-brands/">Phantom brands</a> are a way for supermarkets to overcome this challenge. While this strategy provides significant benefits to supermarkets, it comes with the inherent risk that shoppers may feel duped into buying a brand, which is not really a brand.</p>
<p>How supermarkets communicate the introduction of these new brands will be vitally important to their success.</p>
<h2>Woolworths the latest to try this</h2>
<p>The introduction of phantom brands <a href="https://www.retail-week.com/sectors/grocery/analysis-woolworths-australia-launches-phantom-brand-in-battle-with-aldi/7009930.article">by Australia’s largest food retailer, Woolworths</a>, is a strategic move away from the deepening price wars and offers many commercial benefits. Firstly, such brands will attract a new shopper who is seeking value and willing to pay a little more for a better quality product, while <a href="http://www.woolworthsholdings.co.za/media/news_display.asp?Id2=377">existing Woolworths Essentials products</a> will continue to satisfy the budget shopper. </p>
<p>Secondly, new brand names like Your Majesty Cat Food, Apollo Dog Food, Bell Farms and Baxter’s will give the impression there is a greater choice within the store. Supermarkets expect shoppers will welcome more choice and these new brands. </p>
<p>Thirdly, as these new phantom brands are essentially supermarket-owned brands, higher profits should be achieved. It also allows Woolworths to capture a larger slice of category sales where private labels have <a href="https://hbr.org/1996/01/brands-versus-private-labels-fighting-to-win">traditionally had little penetration</a>, like health and beauty, haircare, pet food and baby needs. </p>
<p>The risk Woolworths will face is in communicating the launch of such brands. While shoppers understand the Aldi offer, brands that aren’t really brands, they may feel with Woolworths they’ve been dudded into buying a brand. </p>
<h2>Why phantom brands work</h2>
<p>As grocery shopping remains a mostly low involvement, routine shopping task, consumers will employ simple strategies to reduce time and cognitive effort. This involves often referring to only brand or price, to <a href="http://www.acrwebsite.org/volumes/7967/volumes/v23/NA-23">determine quality and value and aid in selection</a>.</p>
<p>Supermarket shoppers presented with proprietary brands think higher priced means excellent quality and good value. At the other end of the spectrum, shoppers also encounter supermarket private label products and reason that lower price means acceptable quality and better value.</p>
<p>Phantom brands combine these two different sets of logic. Priced a little higher than supermarket private labels, but under national branded products, shoppers will perceive this new brand as moderately priced, quality comparable to the leading brand and therefore, excellent value.</p>
<p>Aldi provides an excellent example of this strategy at work. Aldi’s private label ranges do not carry the Aldi moniker, instead a wide <a href="https://www.aldi.us/en/grocery-home/aldi-brands/">range of “exclusive” brand names</a> like, Lacura Skincare, Choceur Finest European Chocolate, Belmont Biscuits and Mamia Baby. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/143409/original/image-20161027-11260-bbzaam.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Two brands of cereal, one phantom brand, one name brand.</span>
<span class="attribution"><span class="source">Choice/Allprices.com.au</span></span>
</figcaption>
</figure>
<p>Aldi’s private label ranges mimic the packaging of nationally branded products – take a look at Aldi’s copy of Kellogg’s Nutri-Grain called Power-Grain or its Sunny Crumpets, that look remarkably like Tip Tops’ Golden Crumpets. Such phantom brands infer perceptions of quality as packaging is comparable to the proprietary brands. Aldi’s low prices then create the perception of value. </p>
<h2>Private label growth and its challenges</h2>
<p>Australian shoppers have warmed to the supermarkets’ private label products. <a href="http://www.canstarblue.com.au/food-drink/stores/supermarkets/private-labels-vs-brand-names/">Research by market research company Canstar Blue</a> earlier this year found the number of Australians who purchased private label groceries rose from 44% to 65% in the space of just six months.</p>
<p>Market <a href="http://www.nielsen.com/au/en/insights/news/2016/up-for-grabs-grocery-retailing-growth-opportunities.html">research firm Nielsen estimates</a> supermarket revenue growth will come mostly from private label products. In comparable markets like the UK, the <a href="http://www.mcbride.co.uk/leadership-in-private-label/growth-markets">proportion of private label sales is almost at parity</a> with national branded products and across Europe. </p>
<p>Despite shoppers’ apparent <a href="http://www.nielsen.com/au/en/insights/news/2014/our-penchant-for-private-label.html">appetite for private label products</a>, there is still a stigma attached to buying private label. Much of this <a href="https://www.scribd.com/document/23369430/perceptions-of-generic-products">stigma stems from history</a>, as supermarket private labels evolved from no name generic products.</p>
<p>Ultimately, there <a href="https://hbr.org/1996/01/brands-versus-private-labels-fighting-to-win">are supermarket categories where private label simply doesn’t work</a>, like confectionery, baby food, health and hygiene, haircare. Such categories are dominated by market leaders, Coke <a href="http://clients1.ibisworld.com.au/reports/au/industry/majorcompanies.aspx?entid=1859#MP25">(with 53% market share)</a> and Cadbury <a href="http://www.roymorgan.com/findings/5615-chocolate-block-consumption-cadbury-and-lindt-december-2013-201406012329">(with 30% market share)</a>. Phantom brands will fill this space between private and proprietary brands. </p>
<p>Aldi’s entry into the Australian market in 2001 changed the way shoppers looked at private label products. While Woolworths Homebrand and Coles Smart Buys were generally seen as cheap, if not cheaper than similar Aldi products, consumers considered the quality of these <a href="https://www.scribd.com/document/23369430/perceptions-of-generic-products">no-name generics to be substandard</a>. </p>
<p>As a result, <a href="https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/choice-supermarket-special">supermarkets implemented a “good, better, best”</a> strategy for private labels. This is all despite the recent efforts of the big two supermarkets to <a href="http://www.smh.com.au/business/retail/woolworths-makes-homebrand-homeless-in-private-label-shift-20160327-gns0p2.html">re-launch their private label ranges</a> by essentially removing this bottom rung of no-name generics. </p>
<p>Even the supermarkets’ very best offers, Select and Finest, are still adorned with the supermarket brand and logo. Where these current private label ranges fall short of convincing skeptical shoppers of quality and value, phantom brands will succeed.</p><img src="https://counter.theconversation.com/content/67774/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More supermarkets are starting to stock “phantom brands”- private label products without any reference to the business’ brand or logo.Gary Mortimer, Associate Professor, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/631922016-09-05T12:49:21Z2016-09-05T12:49:21ZCompany results wrap: retail sales flat, but some retailers buck the trend<figure><img src="https://images.theconversation.com/files/136505/original/image-20160905-20255-n1p051.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The success of companies like T-shirt brand Threadless shows innovation matters in retail.</span> <span class="attribution"><span class="source">Todd Kopriva/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p><em>Companies have finished reporting results for the financial year so it’s time to take stock of how the different business sectors of Australia are fairing. In our <a href="https://theconversation.com/au/topics/company-results-2016-30905">company results wrap series</a> we take a step back from the short-term focus of quarterly profit and loss statements and examine what big picture factors are at play.</em></p>
<hr>
<p><a href="http://www.abc.net.au/news/2016-06-02/retail-sales-rise-in-april-abs/7470310">Retail sales data</a> showed growth in the sector falling flat last week, and it remains a tough time to be a retailer in Australia. </p>
<p>Overall, shoppers are expecting more for less, abandoning any sense of loyalty. However, there are bright sparks of success in the moribund sector that point towards what works and what doesn’t in making profits in retail. </p>
<p>Australia’s overall inflation, currently at historical lows, is only kept above zero by the increasing prices of services like health and education, not by retail goods. Retail staples like food, clothing and footwear are <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0">all cheaper</a> than this time last year. Price competition, and pressure on margins in the grocery and clothing markets is intense. </p>
<p>The deflation in “food and non-alcoholic beverages” prices recently reported by the ABS can be most readily explained by the Aldi effect. Aldi’s continued expansion throughout regional Australia and continued push westward to South Australia and Western Australia is <a href="https://theconversation.com/woolworths-counts-the-cost-of-masters-blunder-with-food-business-under-fire-55385">playing havoc with the retail margins of both Coles and Woolworths</a>. Both have fallen to around 4.7% of sales as price declines have been outstripped by operational cost efficiencies. The major challenge for both Coles and Woolworths, however, is to address the fundamental difference in their cost of doing business versus the lean operations of Aldi. </p>
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<p>Away from groceries, as the seasons turn, Australia’s bulging wardrobes continue to make room for yet more clothes and shoes. Despite this, prices are falling. In clothing and footwear, deflation is better explained by the <a href="http://s3.amazonaws.com/academia.edu.documents/30860078/show.pdf?AWSAccessKeyId=AKIAJ56TQJRTWSMTNPEA&Expires=1472687430&Signature=u7LKyzI7pSctEQUMVqPJk7aoauY%3D&response-content-disposition=inline%3B%20filename%3DWhat_drives_consumers_to_shop_online_A_l.pdf">ascendant online marketplace</a> and consumer preferences, shopping traits and experiences. Overall online clothing retail sales growth continues to <a href="http://business.nab.com.au/wp-content/uploads/2016/08/NORSI-July-2016-Final.pdf">far outstrip</a> bricks and mortar retail, with small online retailers (sales less than A$2.5 million) seeing <a href="http://www.sciencedirect.com/science/article/pii/S0022435901000562">strong growth of more than 20% per annum on the back of more agile systems and shopper convenience.</a></p>
<h2>Green shoots</h2>
<p>Looking below the “sectoral” numbers to some examples of individual businesses provides some interesting evidence of these trends - both supportive and contradictory. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/136507/original/image-20160905-20220-1wh7no1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Retail chain Smiggle sells cheap things at high prices.</span>
<span class="attribution"><span class="source">rhoadeecha/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<p>Online surfwear and sportswear retailer <a href="http://www.news.com.au/finance/business/retail/surfstitch-in-a-trough-on-heavy-loss/news-story/a6acf405718441a0deef0c4de2e938c1">Surfstich</a>, for example, saw its share price savaged after it posted a <a href="http://www.abc.net.au/news/2016-08-30/surfstitch-coming-apart-at-the-seams/7799500">massive loss on the back of a flagging acquisition strategy and management upheavals</a>. In a closely related market, however, <a href="http://www.kathmanduholdings.com/">Kathmandu</a> is performing relatively well, flagging higher margins and earnings to come. CEO Xavier Simonet attributes these outcomes to “product newness and careful management of promotional activity” – basically selling a more narrow range of more appreciated goods with less discounting.</p>
<p>Premier Investments continues to outperform. Controlled by Solomon Lew and led by the colourful former CEO of David Jones, Mark McInnes, Premier seems to have the right portfolio of products and <a href="http://www.premierinvestments.com.au/wp-content/uploads/2016/03/20160318_PMV-Half-year-Results-Announcement.pdf">store-based and online business strategies</a> to maintain growth and margins. Its <a href="http://www.abc.net.au/news/2016-03-18/premier-investments-retail-group-profit-surges/7257238">Smiggle</a> business is a case in point. It sells cheap things at high prices to a demographic of adoring tweens, while the quality Peter Alexander brand works as a sales generating all-rounder in the family clothing sector.</p>
<p>Another somewhat bright spot seems to be <a href="http://www.arnnet.com.au/article/605540/kogan-profits-exceed-expectation-following-lackluster-ipo/">Kogan</a> – the online electronics retailer that recently listed on the ASX. It is a business that is hard to categorise. It has a portfolio of own-branded electronics, operates a channel of grey imported products from its offshore subsidiary, and is branching into services including travel. Trading at a discount to its IPO, it is fair to say the market is watching with interest rather than enthusiasm before it decides on the longevity of this idiosyncratic retailer.</p>
<p>One of the most resilient of retailers, <a href="http://www.sharecafe.com.au/sharecafe.asp?a=AV&ai=40971">Harvey Norman</a>, also reported last week. Its result was stellar and its share price soared. Sceptics wonder, though, how much of this can be attributed the the exit of Dick Smith and the rather topsy housing market which all but the most optimistic spruiker sees at or near its zenith.</p>
<p>Both Premier and Kogan point to an emerging trend – <a href="http://www.sciencedirect.com/science/article/pii/S0378720601001276">innovation matters in retail more than ever</a>. Strong growth among small online retailers is showing consumers want variety and novelty in their baskets and wardrobes rather than generic and cheap (or worse, generic and expensive). Globally, firms like <a href="https://www.threadless.com/">Threadless</a> (a T-shirt company whose customers design its logos) are trying new things and creating products that appeal to narrow yet loyal customer groups. In Australia, niche online retailers like <a href="http://babesintheshade.com.au/">Babes in the Shade</a> are showing they have a business model that can work over time.</p>
<p>But innovation is both risky and expensive. More often than not supermarket trialled novelties do not last, with the same true in clothing and elsewhere. This can explain the emergence of firms like Premier Investments that combine retail smarts, relatively deep pockets and novel ideas. Premier can afford the odd disaster when balanced with successes like Smiggle.</p>
<p>In the future, we expect more innovation and variety and thus more turblulence in the sector. Occasional narrow-brand innovators like <a href="http://www.nonib.com.au/">Noni B</a> will succeed, but a more likely model for success will be the porfolio players. They can ride out the ups and downs of retail’s various sub-markets and sustain profitability and growth.</p><img src="https://counter.theconversation.com/content/63192/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is affiliated with the NTEU.</span></em></p><p class="fine-print"><em><span>Nigel Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s a tough time to be a retailer in Australia, but there are some retailers that have found the formula for success.John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/633172016-08-01T20:13:05Z2016-08-01T20:13:05ZBig retailers are realising the risk of moving into convenience stores<p>Supermarkets have moved quickly to capitalise on a growth of inner city dwellers with smaller houses but some retailers like Walmart, Tesco, Morrisons and even Woolworths are back peddling due to the risks.</p>
<p>With <a href="http://www.rba.gov.au/publications/bulletin/2016/jun/3.html">the rise of smaller one and two bedroom apartments</a> with smaller kitchens and an abundance of restaurants, bistros and cafes that amass inner-city streets, consumers are accordingly purchasing groceries more frequently, <a href="http://ausfoodnews.com.au/2015/05/18/research-survey-reveals-more-australian-grocery-shopping-habits.html">up to three times per week</a> and in smaller volumes.</p>
<p>Convenience store growth, online grocery sales and the aggressive expansion of discounters like Aldi, have progressively changed shopping behaviour, encouraging regular top-up shopping rather than weekly one-stop shops. As a result, the big four UK grocery retailers now run more convenience stores like Tesco Express, Tesco Metro, Sainsbury’s Local and M Local, <a href="http://www.cbre.co.uk/uk-en/news_events/news_detail?p_id=17591">than full-line supermarkets</a>. Woolworths have also dipped their toe cautiously <a href="http://c-store.com.au/2016/05/26/woolworths-expand-metro-store-network/">into the convenience market</a>.</p>
<h2>The challenge of convenience</h2>
<p>While the convenience market proposes opportunities for large supermarkets, it also presents risks. The attractiveness of lower build, fit out and leasing costs associated with opening smaller store formats, is weighed against less space and accordingly, less range. Misreading the needs of the local market and getting that range wrong, will negatively impact on sales. </p>
<p>The costs associated with running convenience are significantly higher than large format supermarkets. Wage costs in convenience stores <a href="https://www.ato.gov.au/Business/Small-business-benchmarks/In-detail/Benchmarks-A-Z/G-K/Grocery-retailing-and-convenience-stores/">can hover above 13%</a>, whereas a full-line supermarket can run on less 9% wages to sales. Waste, shrinkage and other operating expenses are inflated as a result of lower sales. </p>
<p>Competition is ferocious. While a supermarket may compete with another neighbouring supermarket, supermarket run convenience stores may find themselves in direct competition with local delicatessens, bakeries, butcheries, news agencies, all vying for the best locations and customers’ dollar.</p>
<h2>Eating themselves alive</h2>
<p>There are no switching costs in grocery retailing and shoppers today are not mortgaged <a href="http://www.woolworthslimited.com.au/icms_docs/136695_Grant_OBrien_Speech_to_QUT_Business_Leaders_Forum.pdf">to any food retailer</a>. This lack of shopper loyalty has driven UK supermarkets to ultimately cannibalise their own sales by rushing to open smaller format stores. </p>
<p>By opening convenience stores on high streets, transit hubs and inner-city areas, the supermarkets have encouraged consumers to shop more frequently for groceries, rather than doing the one big weekly shop. </p>
<p>Today, shoppers now pop into the convenience store to purchase their evening meal on the way home from work, shop in a supermarket for non-perishable foods and then drop into a discounter like Aldi for a bargains. While a move into convenience and smaller store formats make sense, supermarkets should be aware of the risks ever present. </p>
<h2>Abandoning the small store strategy</h2>
<p>In response to an aggressive rollout of small format stores and the protracted price wars, Tesco announced it would review its fleet of stores. It closed 43, 18 of which were Tesco Express convenience stores and 12 smaller Tesco Metro urban stores. Similarly, UK grocery chain Morrisons also moved to <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11426085/How-convenience-stores-helped-to-destroy-the-supermarket.html">closed around 10 convenience stores</a>. </p>
<p>In the US, Walmart announced the closure [over 100 Walmart Express stores] [http://blog.walmart.com/business/20160115/doug-mcmillon-answers-questions-about-sharpened-focus-on-stores], citing a return to the big retail store format. </p>
<p>Here in Australia, four Woolworths metro stores are <a href="http://www.woolworthslimited.com.au/page/The_Newsroom/Latest_News/16_07_25_Woolworths_Limited_Update_on_Operating_Model_Review/">targeted for closure</a> with the renewal of leases of a further five stores in jeopardy. </p>
<p>It appears Woolworths CEO Brad Banducci has taken a leaf out of the play bookof Morrisons’ Chairman Andy Higginson’s , who said he now wants Morrisons to focus on its supermarkets. Banducci’s <a href="http://www.woolworthslimited.com.au/page/The_Newsroom/Latest_News/16_07_25_Woolworths_Limited_Update_on_Operating_Model_Review/">briefing to the market</a> illustrated a returned focus on Woolworths’ core business of supermarkets and liquor. </p>
<p>The strategy involved slashing ranges of tiered private label products, closing under performing stores, [increasing productivity and cutting costs.] [http://www.smh.com.au/business/retail/woolworths-ceo-brad-banducci-unveils-growth-aspirations-20160606-gpctce.html]. It’s a smart strategy indeed that will lead to a leaner, meaner, agile Woolworths in the years ahead.</p><img src="https://counter.theconversation.com/content/63317/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some of the bigger grocery retailers are moving away from convenience stores because of increased costs, difficulties reading the market and cannibalisation.Gary Mortimer, Associate Professor, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/630512016-07-26T06:19:08Z2016-07-26T06:19:08ZCan a corpulent Woolies discard its history and fight off Aldi?<p>Woolworths’ shareholders have endured a bumpy ride these last few years. From its peak close to $40 in mid-2014, the share price has been flirting with $20 most of this year before yesterday’s rather unconvincing spike.</p>
<p>Woolworths’ travails of recent years have been well documented. Most notable has been <a href="https://theconversation.com/masters-was-spoiled-from-the-start-now-woolworths-must-go-back-to-basics-53282">the disastrous Masters foray</a>. This slow motion train wreck got most of the attention, but in hindsight it was a sideshow. The real issue has been the assiduous ascendance of Aldi - a serious and focused competitor that has quietly, patiently but very deliberately moved into Woolworths’ heartland and destroyed its fundamental value. </p>
<p>Australian shoppers, once sceptical of Aldi’s rather idiosyncratic own-brand products, have embraced the German upstart with gusto in recent years. Aldi has been able to position itself as the underdog, when in reality it is one of the world’s most capable and deep-pocketed retailers. Its “piling it high, selling it cheap” approach has been welcomed by Australian shoppers who for far too long knew they were being taken for a ride by a grocery duopoly with some of the highest margins in the world.</p>
<p>Woolworths’ new chief executive, Brad Banducci has the unenviable task of turning all this around and yesterday he fired the one shot he probably has in the locker. </p>
<p>In an absolute sense the announcement yesterday was underwhelming – 500 staff to go and another 1000 moving closer to the retail frontline. Together with the mooted store closures, these add to more than $4 billion of write-downs and charges this year. Banducci has taken the charge on the capital account to embellish the profit and loss by clearing the decks of baggage. </p>
<p>However, the real problem is none of this does anything where it matters, in the stores where the customers are and in the relationships with suppliers. In both areas Woolworths has fundamental and structural problems and yesterday’s announcement does little to address these.</p>
<p>A major problem for Woolworths is its history. Woolworths became corpulent on its own success, shoehorning more and more products into its increasingly large format stores. A large format Woolworths has 15 horizontal metres of yoghurt – Aldi has about 50cm of horizontal space in its refrigerated section devoted to this product. It’s a case in point of how we humans can have too much of a good thing. </p>
<p>Aldi has its own version of most of the products it sells while Woolworths stocks a variety of supplier versions and quite a few of its own. Its growth in the range of what it sells, undertaken while it was riding high on a wave of oligopolistic profitability is virtually impossible to reverse.</p>
<p>The focus of Aldi has so many benefits – lower wastage, more reliable and economical supply arrangements and more efficient in-store logistics. These are the fundamental drivers of profitability that Woolworths simply cannot replicate.</p>
<p>The other major problem facing Woolworths is its relationships – with employees, customers and suppliers. While it was riding high it took the opportunity to strong-arm suppliers into supply arrangements that accrued massive profits to Woolworths, but left suppliers struggling. Woolworths’ employees too must shake their head in disbelief <a href="http://www.smh.com.au/business/retail/woolworths-ceo-grant-obrien-to-depart-with-about-10-million-payout-20150911-gjkis1.html">at the payout for outgoing CEO Grant O’Brien</a> who was most closely associated with the Masters debacle. Customers are also are deserting in droves.</p>
<p>Some may hope that the future can only look better, but this hope may be forlorn. Exiting unprofitable store locations creates a vacuum for Aldi or, worse still, its fellow <a href="http://www.economist.com/news/business/21646224-german-discounters-successful-business-model-only-stretches-so-far-tomorrow-not-quite">German retailer, Lidl</a>. </p>
<p>The willingness of Australians to switch allegiance has delivered Aldi better growth in Australia than any of its other international expansions. This has not gone unnoticed in the board rooms of other global retailers. Australia is still seen as one of the most cosseted and hence promising grocery markets anywhere.</p>
<p>So, taken together while the times are tough for Woolworths, they may well be about to become tougher still. Buying Woolworths shares at their current level may well be a great idea - or we may yet see its shares plummet again as the realities of its huge fixed costs and shrinking margins combine to see more long term pain for the company.</p><img src="https://counter.theconversation.com/content/63051/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is a member of the NTEU.</span></em></p><p class="fine-print"><em><span>Nigel Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Woolworths must turn its fortunes around. Does it have the right strategy?John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/572832016-06-13T20:09:58Z2016-06-13T20:09:58ZWoolworths and Coles should heed simplicity lesson from Aldi<figure><img src="https://images.theconversation.com/files/126077/original/image-20160610-2637-1tijg07.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p><a href="http://www.smh.com.au/business/retail/woolworths-axes-select-private-label-range-as-ceo-fixes-basics-20160606-gpcb4s.html">Woolworths is ditching its Select private label range</a>. It intends to launch a new brand for a more focused range of products that promises more bang for the buck. The move comes after Woolworths decided in March to <a href="https://theconversation.com/woolies-private-label-strategy-will-play-directly-into-the-hands-of-aldi-56914">axe its Homebrand</a> label as part of its strategy to compete with Aldi.</p>
<p>The move makes sense, but will likely do little to restore consumer trust and sales growth.</p>
<p>Management guru <a href="http://www.isc.hbs.edu/about-michael-porter/Pages/default.aspx">Michael Porter</a> has long argued that products need a clear positioning in <a href="https://en.wikipedia.org/wiki/Porter%27s_generic_strategies">consumers’ minds as either special and expensive or convenient and cheap</a>. Woolworths Select was neither, stuck somewhere in the middle. This positioning was confusing for customers. </p>
<p>But will fixing this problem make a difference, and perhaps even keep growing Teutonic supermarket force Aldi at bay? </p>
<p><a href="http://www.news.com.au/finance/business/retail/woolworths-defensive-move-against-aldi-wont-work-expert-claims/news-story/4085d99a93dbf783787a199bef9f3875">Unlikely</a>. After all, similar efforts are only baby steps towards what truly distinguishes growing companies: the ability to make consumers’ lives simpler. Think of Uber, Netflix, Amazon, but also Aldi. That’s the common denominator. </p>
<p>And yet, research shows that most companies keep confusing the gobbledegook out of us. A lot has been written about <a href="http://journals.ama.org/doi/abs/10.1509/jm.10.0182">how consumers get more than they want</a>, and how <a href="http://experiencelife.com/wp-content/uploads/2013/04/The-Paradox-of-Choice.pdf">more product choice often makes us less happy</a>.</p>
<p>But consumer confusion extends to other tactics too, <a href="http://www.sciencedirect.com/science/article/pii/S0148296313002531">like pricing </a> and discounting. Shoppers increasingly ask questions such as: why are some products almost always on special (while others never are)? Do half-price offers mean that we usually pay twice as much as we should? </p>
<p>At best, discounts have become meaningless. While discounts were used successfully in the past to move excess merchandise, they have become ubiquitous and permanent, providing <a href="http://www.nytimes.com/2016/05/14/business/bargain-hunting-frenzy-threatens-traditional-department-stores.html?_r=2">little incentive to respond</a>. It’s a bit like the guy in the audience of a stadium that stands up to see more: it’s an effective tactic so long as not everyone else is standing up too. </p>
<p>Another major concern that emerges is product claims and packaging; for example, most consumers do not know the difference between <a href="http://www.news.com.au/lifestyle/health/how-to-do-your-shopping-faster-without-compromising-on-healthy-foods/news-story/42058eafeb7a9755ea4349816f82dda8">“Product of Australia” and “Made in Australia”</a>. </p>
<p>Also, products claiming to be “natural”, “real”, or “healthy” are usually hiding behind meaningless terms, <a href="https://theconversation.com/food-labels-are-about-informing-choice-not-some-nanny-state-23320">undefined in labelling law</a> and merely meant to persuade rather than inform people. The result is ever more confusion.</p>
<p>So what should brands do to simplify the consumer experience? Ironically, the answer to this question is not simple. It takes an awful lot of work to make things less confusing. An app that you visit once in a while and find easy to navigate may be the result of years of painstaking work, with many difficult decisions made behind the scenes about what should go where, and just as importantly, what to leave out.</p>
<p>Companies should start making every aspect of their product offerings simpler. Consumers do not appreciate clutter; they appreciate everything being transparent, clean and easy. </p>
<p>Marketers should understand that consumers <a href="https://next.ft.com/content/20b6bd56-cdc2-11e2-8313-00144feab7de">rarely inherently care about brands</a>. In some countries, <a href="http://www.mediapost.com/publications/article/254859/most-consumers-do-not-care-about-brands.html">only about 5% of brands would truly be missed</a>. Whether consumers order an Uber ride, or buy a carton of milk, they often want to invest the least amount of effort and time in making the right decision.</p>
<p>Overloading consumers’ already saturated brains with all kinds of marketing tactics, including dynamic pricing and even heavy discounts can backfire or fall flat. This was clear when consumers showed a lack of interest in even 90% discounted product at <a href="http://www.theage.com.au/business/dick-smith-closing-down-sale-the-strangest-saddest-stuff-thats-left-20160428-gogye1.html">Dick Smith’s closing down sale</a>. </p>
<p>Instead, every decision brands make should be guided by a desire to help customers feel confident about their choices. Fortunately, we can learn from a handful of companies that have long understood the principle of simplicity in driving customer satisfaction. </p>
<p>Aldi’s success, for example, is often attributed to its <a href="http://www.independent.co.uk/news/business/news/aldi-and-lidl-named-top-brands-in-the-world-for-their-simplicity-a6727566.html">simple business model</a> of providing consistently low and transparent prices <a href="https://theconversation.com/the-aldification-of-woolworths-is-destroying-its-value-48885">for a reduced range of high quality products</a>. </p>
<p>No discounts, no confusing ads, no loyalty cards, no bullshit.</p><img src="https://counter.theconversation.com/content/57283/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard L. Gruner does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Supermarkets are finally catching on to the fact that consumers have disliked the proliferation of private labels.Richard L. Gruner, Asst Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/569142016-03-29T19:06:35Z2016-03-29T19:06:35ZWoolies private label strategy will play directly into the hands of Aldi<p>Woolworths’ plan to <a href="http://www.theage.com.au/business/retail/woolworths-makes-homebrand-homeless-in-private-label-shift-20160327-gns0p2.html">rebrand its private label ranges</a> in an attempt to meet changing shopper demands and combat the growth of Aldi will simply play into the hands of this German discounter. </p>
<p>This new strategy, <a href="http://www.businessspectator.com.au/news/2015/11/19/retail/coles-revamps-home-brand">a replication of what Coles did in November 2015</a>, will see their existing “Homebrand” and “Woolworths Essential” product ranges combined under the “Essentials” brand name. However, in focusing on price and private label ranges, supermarkets are in a race to the bottom where there are no points of difference in products except for price. </p>
<h2>The risks with the private label strategy</h2>
<p>The fastest, although not the smartest, way to compete with a competitor like Aldi is to replicate; and that’s exactly <a href="http://www.smartcompany.com.au/finance/economy/22834-20111103-how-woolworths-let-coles-back-in-the-grocery-game-five-strategy-lessons/">what Woolworths and Coles have been doing for the past five years</a>. With both major supermarkets driving a message of “price” and increasing their private label ranges, <a href="http://www.news.com.au/finance/business/retail/the-supermarket-switch-is-on-as-aldi-takes-top-award-in-customer-satisfaction/news-story/3ce35413bb26d01118190010c9cb0916">more shoppers also started frequenting Aldi</a>. </p>
<p>Internationally, grocery discounters like Lidl and Aldi continue to <a href="http://www.kantarworldpanel.com/global/News/Grocery-price-war-continues-to-stall-market-growth-in-the-UK">steal market share from the major full-line supermarkets</a>, while supermarkets continue to discount heavily. The practice of deep discounting and private label expansion limits the differentiation between the grocery players and <a href="http://www.roymorgan.com/findings/6442-supermarket-loyalty-whats-that-201509072312">accordingly reduces shopper loyalty</a>. As such, with no supermarket providing a point of difference, more and more customers simply shop around for the lowest price. </p>
<h2>The problem with “no-name” products</h2>
<p>Franklins No Frills was Australia’s first low-cost grocer, with a narrow range of very <a href="http://theconversation.com/is-aldis-move-to-woo-cashed-up-shoppers-a-risk-42113">low priced, generic, “no-name” grocery products</a>. This concept of “no-name” products was new to Australian shoppers at the time and Franklin’s market position initially worked in its favour.</p>
<p>However, Aldi’s entry into the Australian market in 2001 changed the way we looked at private label products. While Woolworths “Homebrand” and Coles “Smart Buys” prices were generally as cheap, if not cheaper than similar entry-level private label products at Aldi, consumers considered the quality of these basic “no-name” products to be substandard to higher tiered private label products. </p>
<p>These lower perceptions are related to packaging. In a low involvement, routine shopping task, supermarket shoppers will often employ simple logic (often brand or price) to determine quality and aid selection. </p>
<p>Woolworths “Homebrand” and Coles “Smart Buys” were designed in plain packaging with no pictures to infer low price. However, shoppers also related low price and plain packaging to mean low quality.</p>
<p>In contrast, Aldi’s private label ranges <a href="http://www.dailymail.co.uk/news/article-2508069/Aldi-successful-copies-brands-improves-quality.html">mimic nationally branded products</a>. As such, shoppers perceive Aldi’s private label ranges to look similar to the nationally branded alternative and correlate quality. The lower price then creates a positive value experience for the shopper. </p>
<p>Woolworths’ new strategy equally is about improving perceptions of brand, through new packaging, while maintaining, or even lowering price. </p>
<h2>The rise and rise of supermarket private labels</h2>
<p>Aldi has legitimised private label products and <a href="http://www.smartcompany.com.au/marketing/sales/49578-aldi-winning-the-private-label-race-as-aussie-shoppers-increasing-shun-big-name-grocery-brands-research.html">forced other players to lift their game</a>. This left Coles and Woolworths scrambling to improve the quality and packaging of <a href="http://www.theaustralian.com.au/business/companies/aldi-threat-sees-coles-revamp-home-brands/news-story/0140431a95c1a07351d8d770ac8c5520">existing home brand ranges</a>. </p>
<p>Where once private label grocery products were considered a “cheap and nasty” alternative for the branded product, supermarket quality assurance teams have changed this mind set. Today’s supermarket private label products, offer quality on par with national branded alternatives, with some, so closely resembling the market leader, one would be <a href="http://www.foodmag.com.au/features/are-supermarkets-deliberately-trying-to-mislead-sh">forgiven for grabbing the wrong box</a>. </p>
<p>Australian consumers appear to be warming to the supermarkets’ private label products. <a href="http://www.canstarblue.com.au/retailers/supermarkets/private-labels-vs-brand-names/">Research last year</a> indicated that the number of Australians who tend to buy private label groceries over big name brands rose from 44% to 65% in the space of just six months. In comparable markets, like the UK, the proportion of private label sales is almost at <a href="http://www.mcbride.co.uk/leadership-in-private-label/growth-markets">parity with national branded products</a> and across Europe, countries like Switzerland and Spain have <a href="http://www.nielsen.com/content/dam/nielsenglobal/kr/docs/global-report/2014/Nielsen%20Global%20Private%20Label%20Report%20November%202014.pdf">already reached more than 50%</a>. </p>
<p>The strategy of increasing the proportion of private label products will meet the needs of shoppers who seek value over brand, but also provides sufficient margin to allow <a href="http://www.smh.com.au/business/retail/woolworths-faces-multimilliondollar-hit-from-private-label-price-cuts-brokers-say-20150519-gh4v5a.html">supermarkets to slash prices further</a>. </p>
<h2>How will private label impact supermarkets in the future?</h2>
<p>When it comes to choice in the supermarket, some is certainly better than none, but more is not necessarily better than less. Australian shoppers can expect less choice in the supermarket of tomorrow and this may not be a bad thing.</p>
<p>For many years, Australian supermarkets promoted vast ranges of brands and products, believing that broader, deeper ranges would satisfy shoppers. However, recent research suggests that, <a href="http://www.fastcompany.com/1775873/paradox-expanded-choices-what-too-much-good-thing-means-consumers">psychologically, this assumption was wrong</a>. In fact, shoppers faced with excessive choice found it difficult to choose and were less likely to purchase.</p>
<p>Aldi has demonstrated <a href="http://www.businessinsider.com.au/moodys-how-aldi-is-about-to-steal-market-share-from-woolworths-and-coles-2015-3">the power of “less”</a>. Selling only 1700 products, the supermarket’s small ranges may deliver less choice, but saves shoppers time, this creates less confusion and satisfies most. </p>
<p>Globally, where German discounters like Aldi or Lidl have entered the market, incumbent supermarkets have slashed range. Recently, <a href="http://www.theguardian.com/business/2015/jan/30/tesco-cuts-range-products">Tesco cut 20,000 product lines from their 90,000 range</a>, similarly Coles in 2012 reduced its range <a href="http://www.news.com.au/finance/business/heavy-discounting-may-reduce-choice-afgc/story-e6frfkur-1226550511481">by some 7,000 products</a>. </p>
<p>While this strategy responds to customers who are looking to make their grocery shopping more efficient, it also reduces supply chain costs for supermarkets.</p><img src="https://counter.theconversation.com/content/56914/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Woolworths’ move to rebrand its private labels may lead to no points of difference for customers between supermarket products except price, where Aldi is strongest.Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/564572016-03-18T11:42:38Z2016-03-18T11:42:38ZLet’s stop with the frozen food snobbery<figure><img src="https://images.theconversation.com/files/115590/original/image-20160318-4425-1jt7bme.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.pexels.com/photo/berries-raspberries-blueberry-blackberries-10647/">unsplash.com/Pexels</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>It’s fair to say that frozen food has a bit of an image problem. One in three Britons <a href="http://www.thegrocer.co.uk/reports/digital-features/frozen-report-2015/revealed-one-in-three-say-frozen-food-is-inferior-to-fresh/514215.article">believe it is inferior</a> to fresh food, and 43% say that <a href="http://www.thegrocer.co.uk/reports/digital-features/frozen-report-2015/revealed-one-in-three-say-frozen-food-is-inferior-to-fresh/514215.article">nothing could persuade</a> them to buy more frozen fare. Confidence in the sector was further knocked by the infamous <a href="http://www.theguardian.com/sustainable-business/2016/jan/07/horsemeat-scandal-food-safety-uk-criminal-networks-supermarkets">horsemeat scandal</a>. </p>
<p>But for the sake of <a href="http://news.health.com/2013/10/17/reasons-nutritionist-buys-frozen-fruits-veggies/">our health</a>, our <a href="http://bfff.co.uk/wp-content/uploads/2013/06/Frozen-Food-Report-2-Nov-10.pdf">pockets</a> and the environment, it may be time to stop turning our noses up at frozen food.</p>
<p>Humans have been using freezing as a means of safely preserving food for thousands of years. But it wasn’t until the 1920s, when <a href="http://www.biography.com/people/clarence-birdseye-9213147">Clarence Birdseye</a> kick-started the development of home refrigerators and launched the first line of frozen foods, that the industry really took off. </p>
<p>Despite embracing other types of <a href="http://www.theguardian.com/money/2013/sep/05/home-cooking-decline-low-income-ready-meals">convenience foods</a> and the <a href="http://www.dailymail.co.uk/news/article-164609/UK-tops-ready-meals-consumption.html">rise of ready meals</a> – with the market predicted to grow <a href="http://www.talkingretail.com/category-news/supermarket/ready-meals-market-forecast-to-rise-20-by-2017/">20% by 2017</a> – the UK is still reluctant to go frozen. Instead frozen food is often viewed as a last resort – for when people can’t get to the shops.</p>
<h2>Food snobs</h2>
<p>Some of it may come down to snobbery. According to the director general of the British Frozen Food Federation, frozen food compares favourably to fresh in blind taste tests. But in the UK and US there is a passionate love-hate relationship with <a href="http://www.bbc.co.uk/news/magazine-24551578">frozen food retailers</a> such as Iceland. </p>
<p>Despite the growth of <a href="http://www.ibtimes.co.uk/iceland-boss-malcolm-walker-aldi-rant-weve-beaten-germans-well-fg-beat-them-again-1494438">budget brands</a> Aldi and Lidl in recent years, Iceland is still perceived in some circles as being downmarket and inferior, something it is challenging with its new “<a href="http://www.poweroffrozen.co.uk/">power of frozen</a>” marketing strategy.</p>
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<img alt="" src="https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/115494/original/image-20160317-30227-17l8e4i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Beyond beige: Frozen doesn’t have to be unhealthy.</span>
<span class="attribution"><span class="source">Salvomassara/Shutterstock</span></span>
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<p>Ironically perhaps, this is in part due to price. Frozen foods are often cheaper at point of sale than fresh produce – due to lower production costs – and this can affect consumers’ <a href="http://www.bbc.co.uk/news/magazine-24551578">perception of quality</a>. Similar beliefs are held in the US, where in one study; <a href="http://mobile.foodnavigator-usa.com/Markets/ConAgra-on-a-mission-to-change-consumer-perceptions-of-highly-processed-frozen-meals">four out of five consumers</a> believed frozen foods to be “highly processed”.</p>
<p>Not so in France. Many French consumers see frozen food as being healthy, <a href="http://www.frozenfoodeurope.com/frozen-food-in-france-positive-perception-can-spell-growth/">fresh, and of a high quality</a>. This is no doubt helped by the strong brand presence of <a href="http://www.picard.fr/">Picard</a>, a premium retailer, which accounts for <a href="http://www.frozenfoodeurope.com/frozen-food-in-france-positive-perception-can-spell-growth/">a fifth</a> of all new frozen food launches in the country. </p>
<p>And who are we to argue with the French, whose reputation for fine food is in stark contrast to <a href="http://www.bbcamerica.com/anglophenia/2012/03/five-myths-about-british-food">international beliefs</a> about British food? </p>
<h2>Freeze up</h2>
<p>It does seem that the French might be on to something. Studies have shown that freezing does indeed “lock in” the beneficial nutrients of fruits and vegetables. </p>
<p><a href="http://bfff.co.uk/wp-content/uploads/2013/09/Leatherhead-Chester-Antioxidant-Reports-2013.pdf">In one experiment</a>, fresh produce was stored in a general household fridge at 4°C for up to three days. They were then compared with equivalent frozen produce stored in a domestic freezer at -20°C. The concentrations of antioxidants and other key nutritional components decreased in the refrigerated produce, and ended up lower than that found in the frozen goods. </p>
<p>Freezing excess food can also help us with <a href="http://jn.nutrition.org/content/135/4/905.full">portion control</a> – which is thought to be key to tackling the current obesity epidemic. Frozen fruit and veg also count towards your <a href="http://www.nhs.uk/change4life/Pages/food-exercise-mythbuster.aspx">five a day</a> so the health argument for having a stock of non-perishable fruit and veg is pretty clear.</p>
<p>Britain has the <a href="http://alphagalileo.org/Organisations/ViewItem.aspx?OrganisationId=1091&ItemId=155405&CultureCode=en">highest level of food wastage</a> in the European Union, with each household throwing away 13lb (6kg) of food each week. Throwing away items that could have been consumed <a href="http://www.wrap.org.uk/sites/files/wrap/hhfdw-2012-summary.pdf">cost each household</a> £470 (US$679) in 2012. Embracing frozen food would likely lead to a reduction in food waste and create a more sustainable use of <a href="http://bfff.co.uk/wp-content/uploads/2013/06/Frozen-Food-Report-2-Nov-10.pdf">seasonal foods</a> that are consumed out of season, as well as saving us money. </p>
<h2>Pick and choose</h2>
<p>Of course, freezing isn’t appropriate for all foods. The <a href="http://www.extension.umn.edu/food/food-safety/preserving/freezing/the-science-of-freezing-foods/">process of freezing</a> creates ice crystals. The more water there is in a food, the bigger the ice crystals. The bigger the ice crystals, the more damage freezing does to the food structure and the food quality. So many veg such as lettuce leaves, mushrooms and cucumbers do not fare too well in their natural state due to their high water content. </p>
<p>There are <a href="http://www.fao.org/docrep/008/y5979e/y5979e03.htm">ways around this</a>, though, with the use of cooking or pulping and even <a href="http://www.green-talk.com/freeze-cucumbers-learn-how-to-use-them/">changing the way you use your</a> food. But on the whole, meat, fish, peas, sweetcorn and <a href="http://www.dailymail.co.uk/health/article-2937320/Is-frozen-food-actually-better-fresh-Keeping-ingredients-ice-preserves-vitamins-minerals-experts-say.html">even aromatic spices</a> all respond well to freezing in their natural forms.</p>
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<a href="https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/115495/original/image-20160317-30206-1ruqoc2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">You too could be this happy shopping in the freezer aisle.</span>
<span class="attribution"><span class="source">Iakov Filimonov/Shutterstock</span></span>
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<p>When it comes to freezing, it doesn’t have to be either-or. Fresh bananas can be happily whipped up into a smoothie during the winter with the punnet of summer berries that were tucked away in the freezer. And for many products that don’t freeze well on their own, they can be frozen just fine if they have been cooked in a <a href="http://www.bbcgoodfood.com/recipes/collection/freezable">rich sauce first</a>.</p>
<p>These days frozen offerings are not restricted to fish fingers and pizzas, innovation in the industry has brought about a raft of premium frozen products. You can even tempt your palate with such delights as bass fillets in a <a href="http://www.thegrocer.co.uk/reports/digital-features/frozen-report-2015/posh-fish-helps-frozen-sales-thaw/514447.article">crispy lemon and herb tempura</a> now appearing in frozen aisles near you. </p>
<p>So in the words of the other famous “Frozen” – you know, the <a href="http://frozen.disney.co.uk/">Disney one</a> – perhaps, when it comes to our snobbery over frozen food, it’s time for us to just “let it go”.</p><img src="https://counter.theconversation.com/content/56457/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emma Boyland does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Eating more frozen food could help us reduce waste, beat the obesity epidemic and have more money in our pockets – what’s not to like.Emma Boyland, Lecturer in Appetite and Obesity, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/547452016-03-16T19:18:53Z2016-03-16T19:18:53ZRetail outlook: big retailers feel the pressure of new challengers<p><em>It’s reporting season, and over the past few weeks some of Australia’s biggest companies have been releasing information on how they’re travelling. These reports reflect key themes of how things are going in key sectors of the economy. Over coming days we’re going to report on the results a handful of major companies in key sectors, transport, construction, retail, mining, insurance and banking. Today we look at the retail sector.</em></p>
<hr>
<p>Dominant retail giants Wesfarmers - owner of Coles supermarkets - and Woolworths hold a 70% of market share of Australia’s fresh food grocery market, but have had contrasting fortunes over the past few years. Half-year results for Wesfarmers and Woolworths for 2016 show very different outlooks.</p>
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<img alt="" src="https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=735&fit=crop&dpr=1 600w, https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=735&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=735&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=924&fit=crop&dpr=1 754w, https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=924&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/113819/original/image-20160304-9463-1cuzyw1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=924&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>Meanwhile, the major retail players are continuing to feel the disruptive impact of smaller players such as Aldi and highly competitive market conditions; both will have employ new strategies away from the tried and true defensiveness that has worked in the past.</p>
<p>Wesfarmers <a href="https://www.wesfarmers.com.au/document/investors/asx-announcements/2016-3/1500-2016-half-year-results-presentation.html">reported a net profit</a> after tax of $1.4 billion, up 1.2% since the same time last year, while Woolworths <a href="http://www.woolworthslimited.com.au/icms_docs/182526_16_02_26_HY16_Earnings_Announcement.pdf">reported a net loss</a> of $973 million after a profit of $1.3 billion. Over the last few years Coles has seen stronger sales growth and <a href="http://www.smh.com.au/business/coles-outperforms-woolies--again-20130418-2i1ju.html">comparatively better market share</a>.</p>
<p>By contrast, Woolworth’s strategy problems with its home improvement business, Masters, has been widely ventilated. The company attributed $1.8 billion loss to the costs related to <a href="https://theconversation.com/woolworths-counts-the-cost-of-masters-blunder-with-food-business-under-fire-55385">its exit from Masters</a>.</p>
<p>Woolworths’ underlying profit was $925 million, still down 33% on prior year. Woolworths would hope that its exit from the ultimately costly Masters endeavour will serve as a boost to investor confidence. </p>
<p>Woolworths has also struggled with branding and has seen advertising agency changes over the last few years the most recent being the dropping of <a href="http://mumbrella.com.au/woolworths-appoints-mc-saatchi-343314">Leo Burnett and a return to M&C Saatachi</a>. </p>
<p>Perhaps more revealing to the outlook of the industry are some of the underlying similarities in strategy. Both Woolworths and Wesfarmers emphasised price deflation, cost reduction and further price cutting, as key strategies.</p>
<p>The companies <a href="https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/cheapest-groceries-australia">expect highly competitive market conditions</a> and consumers to remain price sensitive, and will largely focus on improving supply chain productivity, through cost reduction. Woolworths is reducing its spending on activities such as marketing, property acquisition and rent as part of $500 million in cost savings during the 2016 financial year (July 2015 to July 2016).</p>
<p>Likewise, Wesfarmers has <a href="http://www.woolworthslimited.com.au/icms_docs/182527_Woolworths_Limited_Half_Year_FY16_Earnings_Announcement.pdf">highlighted similar measures</a>, with <a href="https://www.wesfarmers.com.au/document/investors/asx-announcements/2016-3/1500-2016-half-year-results-presentation.html">cost cutting objectives</a>, the company hopes will allow them to lower their prices in the supermarket even further. </p>
<p>In an industry where profit margins are already low, such intense competition would carry significant risk. If sales don’t meet expectations, the retailers have little room to lower prices when margins are low. As a consequence, covering fixed costs like maintenance and rent of stores becomes increasingly difficult and the likelihood of making a loss is higher.</p>
<p>To some extent these price wars reflect the two retail giants directly competing against each other, but another factor is the disruption caused by new entrant Aldi. The supermarket chain has gained 11% of the market since it came onto the scene in 2002, using its <a href="http://www.theaustralian.com.au/life/weekend-australian-magazine/how-aldi-supermarkets-created-converts-in-australia/news-story/c9a22fdae3419fba96471adc61ae374e">streamlined, low cost supply chain</a> to undercut Woolworths and Wesfarmers on price.</p>
<p>Aldi is a unique player in this space. In the past Coles and Woolworths could exercise their market share and size to squeeze out small producers; but Aldi is a different beast, a global company with a presence in both Europe and the USA.</p>
<p>Aldi may not even be the biggest problem facing the locals, if <a href="http://www.smh.com.au/business/retail/move-over-aldi-more-discount-supermarkets-could-be-on-the-way-20140716-ztoiz.html">reports that European retailers such as German retailer LIDL are sizing up the Australian market</a> prove true. LIDL is the fourth biggest retailer in the world, with $128 billion in annual sales. Whatever hold true for Aldi is doubly true for LIDL. Other hypotheticals floated around Danish discounter Netto and UK grovery giant, Tesco. </p>
<p>The traditional defensive strategy against competitors employed by the Aussie giants relies on economies of scale, being larger than your rival and being able leverage this efficiency to deliver a cheaper end product or more controversially to loss lead and force your opponent out of business maintain your market share and eventually maximise your profit. </p>
<p>Woolworths and Coles are falling back on their old ways to try and beat Aldi, the companies’ corporate strategy for the most part is focused on a doubling down on the traditional squeeze out all newcomers approach. However Aldi brings global resources to the table that Woolworths and Coles don’t have access to.</p>
<p>In the retail sector Aldi will continue to steal market share from Wesfarmers and Woolworths more so if the companies continue with old strategies and don’t think of a way to innovate the retail space.</p><img src="https://counter.theconversation.com/content/54745/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shumi Akhtar receives funding from the ARC, CIFR and a number of other organisations.</span></em></p><p class="fine-print"><em><span>Farida Akhtar receives funding from AFAANZ grant. </span></em></p>The big supermarkets, Woolworths and Coles, will need to think of new strategies to compete with new chains such as Aldi which continue to steal market share.Shumi Akhtar, Senior Lecturer, University of SydneyFarida Akhtar, Lecturer, Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/553852016-02-26T00:43:05Z2016-02-26T00:43:05ZWoolworths counts the cost of Masters blunder, with food business under fire<p>Woolworths’ long-suffering shareholders may well be asking the newly appointed CEO, insider <a href="http://www.businessinsider.com.au/the-new-ceo-of-woolworths-is-insider-brad-banducci-2016-2">Brad Banducci</a>, if today marks the <a href="http://www.asx.com.au/asxpdf/20160226/pdf/435czmgwcn2stm.pdf">nadir of the company’s woes</a>. The answer, sadly, is probably not.</p>
<p>The Masters disaster has been <a href="https://theconversation.com/masters-was-spoiled-from-the-start-now-woolworths-must-go-back-to-basics-53282">well documented</a> and today Woolworths has tried to quantify the cost of this massive blunder at A$3.25 billion. The real problem, however, lies in the damage done to the rest of the business by this massive strategic and financial distraction, but also in the very real changes in the market for groceries, where Woolworths has traditionally made its profits. On every front, the news continues to be bad.</p>
<p>Stripping out the losses from the Masters joint venture attributable to Woolworths shareholders, every relevant metric today reported by Woolworths is pointing down. Food and liquor sales growth are behind general price inflation – thus declining in real terms. More importantly, margins are down significantly in this key element of the business such that EBIT in food, liquor and petrol is down a whopping 31.7%.</p>
<p>Curiously, Woolworths choose to combine its group EBIT for food, liquor and petrol (down by about A$600 million), while separating the sales figures (up by A$147 million and down by A$787 million). The management correctly noted that declining sales in petrol can be partly explained by lower petrol prices, and changes in the Caltex alliance, but a real question remains regarding just how profitable the individual businesses of petrol and food and liquor retailing actually are. The decline of comparable (like for like) petrol sales volumes of 2% raises serious questions about Woolworths’ growth strategies and future profitability in petrol.</p>
<p>It’s the <a href="http://www.rba.gov.au/publications/bulletin/2012/jun/pdf/bu-0612-2.pdf">margins and costs of doing business</a> reported today in the main business of groceries that should be of real concern to shareholders. Basically, margins report the difference between sales and the costs of goods sold while costs of doing business reflect staffing, rent, administration and most else. Both are moving strongly in the wrong way.</p>
<p>Put simply, for every A$100 trolley of groceries (and petrol) Woolworths sold in the equivalent prior period in 2014, the goods cost it A$74.54. This most recent period those goods cost it A$75.09. It cost Woolworths A$18.03 to sell those goods previously – most recently it cost the company A$19.70. Taken together then, for that A$100 trolley of goods, it made a profit of A$7.43 in the last half of 2014, while a year later it <a href="http://www.asx.com.au/asxpdf/20160226/pdf/435cz6mrp9yhpk.pdf">made only A$5.21</a>.</p>
<h2>Competition crunch</h2>
<p>Returning to the question asked at the head of this article – are better times ahead? The answer is almost certainly not. A key driver of declining margins has been Aldi, a firm that is accelerating its rollout. Aldi has recently opened in <a href="https://www.aldi.com.au/en/shopping-at-aldi/sa-now-open-wa-coming-soon/sa-and-wa-store-locations/">South Australia, with Western Australia next</a>.</p>
<p>Aldi’s success may well spur other global retailers to try their luck in Australia – in Europe firms like <a href="http://www.news.com.au/finance/business/retail/could-this-be-the-aldi-killer-german-discount-chain-lidl-prepares-to-open-in-australia/news-story/36ff46c01b6ab4d75ba240002f325eca">Lidl</a> and Carrefour have similar global sourcing and operational capabilities that could readily extend to new Australian operations.</p>
<p>Woolworths’ response to the changing market conditions has been less than impressive, albeit understandable when you consider its history. Once a comfortable member of one of the world’s most cosseted grocery duopolies, Woolworths developed large format stores that had vast ranges of goods that it sold at fat margins. It was a high cost and high margin model that left frustrated Australian consumers paying some of the highest grocery prices anywhere. Changing the Woolworths way of doing business is no small task as it is so entwined in the assets, business relationships and technology it has built over many decades.</p><img src="https://counter.theconversation.com/content/55385/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is affiliated with the ALP and NTEU.</span></em></p><p class="fine-print"><em><span>Nigel Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shareholders should be worried about how much it’s costing Woolworths to run its business.John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/488852015-10-29T04:43:10Z2015-10-29T04:43:10ZThe ‘Aldification’ of Woolworths is destroying its value<p>Woolworths shareholders have had a torrid couple of years. The company’s <a href="http://www.asx.com.au/asx/research/company.do#!/WOW">market capitalisation</a> is down around a third since mid-2014 – quite a hit for a company once worth almost A$50 billion dollars. Today it forecast a 35% fall in half-year profit, sending its shares plunging by more than 9%.</p>
<p>The disastrous Masters foray is partly to blame. Conceived in oligopolitical hubris, <a href="https://theconversation.com/masters-has-machismo-but-needs-aldi-smarts-25258">Masters</a> has been an unmitigated disaster for Woolworths shareholders. They were right to expect far better from the company’s exceedingly <a href="http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf">well-remunerated board</a> and <a href="http://www.smh.com.au/business/cbd/the-long-kiss-goodbye-will-be-a-sweet-one-for-woolworths-boss-grant-obrien-20150617-ghpwvp.html">senior executives</a>. The fact that Masters has ended quite a few careers is cold comfort for shareholders who have lost hard earned savings and superannuation.</p>
<p>Today’s <a href="http://www.asx.com.au/asxpdf/20151029/pdf/432hwtmcy6cq24.pdf">results</a> open a new chapter of woe. Once, Masters was seen as an unfortunate sideshow, able to be separated from the Goliathan strength of Woolies’ grocery cash machine. Today, the illusory nature of that misapprehension has emerged – with sales in decline year-on-year for like stores, and a flagged collapse of earnings by up to a third and, most tellingly, no end in sight.</p>
<p>While the problems of the last 18 months at Woolworths have often been ascribed to the Masters debacle, analysts have long been worried about the main game in groceries. Aldi, the privately-held German multinational, has been playing a cautious and patient long game. </p>
<p>Aldi’s “value proposition” to consumers is starkly different to both Woolworths and Coles, and it’s clear Australians have warmed to what Aldi has to offer – a narrow range of good quality products at prices equivalent to the majors’ “specials”. The narrow range and small format stores have the additional benefit of quick and easy shopping for busy consumers. Woolworths has been <a href="http://www.smh.com.au/business/retail/coles-woolworths-iga-to-lose-market-share-to-aldi-david-jones-says-moodys-20150813-giy6x0.html">losing market share</a> quickly.</p>
<p>Its response has so far been too little and too late. Woolworths has tried to “shoehorn” an Aldi equivalent into the lower shelves of its large format stores. It suggests to consumers that they can get a basket of goods similar to Aldi’s at the same price within their stores if they look hard enough. In this regard – to paraphrase the late, great Z.Z. Hill - what Woolies are selling, Australians <a href="http://connection.ebscohost.com/c/articles/26915327/retail-price-drivers-retailer-profits">ain’t buying</a>.</p>
<p>The limited success of this “Aldification” of Woolworths stores has, however, done damage to Woolworths’ core business of groceries. Whenever consumers choose the low cost goods within Woolworths, it is <a href="http://onlinelibrary.wiley.com/doi/10.1002/mde.2737/abstract">at the expense of the higher margin goods</a> they also have for sale. This is evidenced by the steep decline in margins reported today – with sales in slight decline (2.5%) and projected earnings in free fall (28 to 35%). Woolworths is learning the hard way that while revenues are easy to lose, the same can’t be said for the fixed costs involved in running a national retailer.</p>
<p>In the background, again, lies Masters. Its disastrous drain on revenues has meant Woolworths has had little to invest in new stores elsewhere. While Woolworths has opened six new stores during the quarter, Aldi has <a href="http://www.theaustralian.com.au/business/companies/aldi-to-open-80-new-stores-and-step-up-supermarket-war/story-fn91v9q3-1227506815155">flagged the opening of up to 80 new stores</a> during 2016, on top of the 80 it opened this year. Its expansion is uncannily like a German train timetable and its geographical spread means most of these new stores will not cannibalise existing sales – something Woolworths can rarely achieve.</p><img src="https://counter.theconversation.com/content/48885/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is a member of the ALP and the NTEU.</span></em></p><p class="fine-print"><em><span>Nigel Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The retail giant’s attempt to head off Aldi’s growing market share is causing more headaches for shareholders.John Rice, Professor of Management, University of New EnglandNigel Martin, Lecturer, College of Business and Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/481512015-09-28T03:25:33Z2015-09-28T03:25:33ZDown, down but not different: Australia’s supermarkets in a race to the bottom<p>For 25 years, Woolworths <a href="http://mumbrella.com.au/woolworths-brings-back-fresh-food-people-positioning-brand-campaign-leo-burnett-243805">told shoppers</a> they were “the fresh food people”. It was a very clear point of difference and delivered the group a sustainable competitive advantage. Any attempt by a competitor to replicate it would have been dismissed as lacking credence; a simple market-follower strategy. </p>
<p>In contrast, Coles appeared lost and without direction, the result of an ever-changing senior leadership team, until Ian McLeod arrived in 2008. Prior to 2000, Coles was “serving us better”, then in 2002 shoppers were “saving everyday”. In 2004, Coles was “delighting their customer” and then things were getting a “little better … every day”. Finally, the more recent “down, down” campaign has aligned with its “quality food costs less at Coles” slogan, <a href="http://www.roymorgan.com/findings/5013-supermarkets-low-price-perception-march-2013-201307030140">cutting through with shoppers</a>.</p>
<p>Somewhere along the way Woolworths was blindsided. The group fell <a href="http://www.theaustralian.com.au/business/companies/woolworths-under-fire-as-suppliers-list-their-complaints/story-fn91v9q3-1227546332364">out of favour</a> with suppliers and was distracted by its troubled Masters hardware chain. The turnaround plan suffered a further blow with the <a href="http://www.smh.com.au/business/retail/woolworths-chief-executive-grant-obrien-to-retire-20150616-ghpr0a">news chief executive Grant O'Brien would step down</a> after less than four years in the job.</p>
<h2>Lack of differentiation</h2>
<p>At the same time Coles was <a href="http://www.smh.com.au/business/coles-outperforms-woolies--again-20130418-2i1ju.html">closing underperforming stores</a>, <a href="http://www.smartcompany.com.au/growth/economy/1462-coles-to-cut-its-product-range-by-30.html">cutting its range</a> to streamline supply chains, cutting overhead costs and investing heavily in store refurbishments.</p>
<p>The fastest, although not the smartest, way to compete with an aggressive competitor is to replicate; that’s exactly what Woolworths and more recently IGA did. A quick look at Coles’, Woolworths’ and IGA’s catalogues and stores today illustrates the same deep discounting strategy. </p>
<p>It was clearly an <a href="http://www.smartcompany.com.au/growth/economy/22834-how-woolworths-let-coles-back-in-the-grocery-game-five-strategy-lessons.html">error of judgement</a> for Woolworths to move away from its very successful “fresh food people” position. The “cheap, cheap” campaign confused loyal shoppers and played into the hands of Coles, which was better positioned to deliver on price. With both majors driving a message of “price”, more shoppers also started <a href="http://www.news.com.au/finance/business/the-supermarket-switch-is-on-as-aldi-takes-top-award-in-customer-satisfaction/story-fnkgdftz-1227450718972">trailing the German discounter Aldi</a>.</p>
<h2>The lowest price doesn’t necessarily win</h2>
<p>If you are not a discounter, move away from price. While most supermarkets will carry a range of low-priced, generic private-label products to service the discount-shopper segment, sending the message that you sell groceries “cheap, cheap” and “down, down” every day is risky. </p>
<p>Even Metcash-owned IGA has moved away from its <a href="http://www.campaignbrief.com/2013/05/iga-launches-second-stage-of-i.html">“local” campaign</a> to now promote itself as “the same” as the big two with a recently launched <a href="http://www.news.com.au/finance/business/new-challenger-takes-on-coles-woolies-with-supermarket-price-match-war/story-fnkgdftz-1227408996343">“price match” campaign</a>. Price is easily comparable and replicated, and this has been played out across Australian supermarkets over the last few years.</p>
<p>Internationally, grocery discounters like Lidl and Aldi continue to <a href="http://www.kantarworldpanel.com/global/News/Grocery-price-war-continues-to-stall-market-growth-in-the-UK">take market share away</a> from the major full-line supermarkets, while the supermarkets continue to discount heavily. The practice of deep, unsustainable and potentially unprofitable deep discounting has even begun to attract <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11423518/Tesco-fightback-hits-Asda-sales.html">criticism</a> for grocers. </p>
<p>However, while Australian supermarkets and independent grocers continue to focus on price, shoppers will continue to shop between all brands for the lowest; <a href="http://www.smartcompany.com.au/finance/48321-shelf-life-iga-tops-supermarket-loyalty-stakes-as-just-7-of-shoppers-exclusively-buy-at-aldi.html">loyalty is lost</a>. This is most evident with Aldi, which in Australia has the lowest customer loyalty at 7%, compared to the majors at 25% and IGA at 30%. Supermarket retailing in Australia has become a race to the bottom.</p>
<h2>Fresh – the future fight</h2>
<p>Discounters will always win on price. The smart approach to combating this threat is <a href="http://www.smh.com.au/business/retail/coles-woolworths-urged-to-target-aldis-weaknesses-20150527-ghav10.html">not to position yourself as the same</a>, but different. A focus on what the discounters don’t offer – such as range, value, service and fresh foods – is a much smarter approach. </p>
<p>The price of a litre of milk or a loaf of bread is easily comparable, whereas “fresh” is not. The fresh food component of a supermarket also <a href="http://www.afr.com/business/fresh-food-the-real-revolution-in-supermarket-aisles-20130402-jhz1i">delivers more profit</a> than dry groceries. Fresh is where the next battle will be fought and won. </p>
<p>Now that Coles has established its position as the provider of low-priced groceries, its next move will be to focus on the <a href="http://mumbrella.com.au/coles-takes-fresh-food-battle-to-woolworths-as-supermarket-marketing-war-goes-on-306280">“fresh food” space</a> now vacated by Woolworths, which still appears to be <a href="http://www.smh.com.au/business/retail/woolworths-redfaced-after-nielsen-refuses-to-endorse-price-claims-20150914-gjm8d8.html">cutting prices</a>. </p>
<h2>The future of convenience</h2>
<p>When shoppers have been conditioned to think about the price they pay each week for a basket of groceries, the franchised grocer model no longer works. Already, <a href="http://www.theaustralian.com.au/business/companies/aldi-growing-but-metcash-doomed-says-hamish-douglass/story-fn91v9q3-1227521819361">experts have suggested</a> that within 10 years Metcash’s independent grocers will no longer feature in the Australian grocery market. </p>
<p>Yet overseas the convenience store model is growing faster than full-line supermarkets. While some of this growth comes from the ability to embed small store footprints into high streets and high-density areas, much of it is the result of major <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11426085/How-convenience-stores-helped-to-destroy-the-supermarket.html">supermarkets moving into this space</a> with their brands: Tesco Metro, Tesco Express, Sainsbury’s Local and Carrefour Metro.</p>
<p>With Roy Morgan’s latest shopper loyalty research illustrating IGA has the most committed shoppers, even with perceived higher prices, IGA would be best to walk away from a price war. If IGA is unable to defend against the <a href="http://www.abc.net.au/news/2015-03-05/aldi-threat-growing-for-coles2c-woolworths/6282558">growth of Aldi</a> and a re-energised Coles and Woolworths, it is highly probable it will either exit the market or reposition itself <a href="http://hartbeat.hartman-group.com/hartbeat/512/value-at-whole-foods-market-">upmarket</a> as a premium grocer. </p>
<p>Either way, it is likely that both Woolworths and Coles will look favourably at moving into this space with a chain of Woolworths Metro or Coles Express <a href="http://www.smh.com.au/business/property/woolworths-coles-to-take-on-convenience-stores-20141005-10qhgw.html">convenience stores</a>.</p><img src="https://counter.theconversation.com/content/48151/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Convenience stores could be the next big focus for Australia’s grocery retailing giants.Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/438292015-06-25T06:21:19Z2015-06-25T06:21:19ZDavid Jones seeks to exploit top end gap in Australian grocery<p>While Australia’s supermarkets continue to <a href="https://au.finance.yahoo.com/news/iga-joins-supermarket-price-wars--slashes-prices-025704637.html">battle on price</a>, the South African owner of David Jones, <a href="https://theconversation.com/who-is-the-south-african-retail-giant-behind-the-david-jones-bid-25472">Woolworths Holdings</a>, has found a gap in the Australian grocery market and is preparing to exploit it. </p>
<p>Reports that the group has appointed Pieter de Wet to <a href="http://www.brisbanetimes.com.au/business/retail/woolworths-vs-woolworths-djs-new-owner-to-overhaul-food-business-20150624-ghwgqo.html">overhaul the David Jones food business</a> signals once again the ever-changing face of the Australian food and grocery landscape. A re-energised David Jones food offer will provide positive outcomes for both shoppers and suppliers, while potentially becoming another headache for Coles and Woolworths.</p>
<h2>A splintering market</h2>
<p><a href="http://www.igd.com/Research/Retail/retail-outlook/3371/UK-Grocery-Retailing/">Similar to the UK</a> and Europe, the Australian grocery market is beginning to split into discounters at one end and mainstream supermarkets at the other. While the growth of discounter-style grocers continues to outperform supermarkets and <a href="http://www.conveniencestore.co.uk/news/discounters-growing-faster-than-c-stores-and-supermarkets/520418.article">convenience stores globally</a>, the “top end” of the market appears ripe for exploitation. </p>
<p>Globalisation, innovation, multiculturalism, media, travel and the internet have shifted the power from the retailer to the consumer. Information-rich food shoppers are now more empowered to make decisions than ever before. Exotic food from around the world is available at local bistros across Australia suburbs. Reality television cooking shows and gourmet food markets tempt shoppers to seek out <a href="http://www.ift.org/food-technology/past-issues/2015/april/features/the-top-ten-food-trends.aspx?page=viewall">exclusive, unique fare</a>. </p>
<p>The days of “meat and three veg” have long gone. Herein lays the opportunity for David Jones. </p>
<h2>Value isn’t just about price</h2>
<p>Media reports are claiming that rather than reporting to David Jones’ CEO Iain Nairn, de Wit will report directly through to Woolworths SA CEO Ian Moir – something that he has <a href="https://www.linkedin.com/pub/pieter-de-wet/39/134/b84">done since October 2014</a>. This arrangement has accordingly added to the speculation that Woolworths SA is aiming to capture the high-end grocery segment by opening David Jones-branded food stores in a <a href="http://www.hartlepoolmail.co.uk/news/business/exclusive-first-look-inside-new-hartlepool-marks-spencer-store-1-7310781">similar ilk to that of Marks & Spencer</a>. </p>
<p>Such a strategy has proved successful in cushioning several international supermarkets from increased price discounting. Offering juice bars, free wine tasting, premium products and local food feature in UK supermarket Waitrose’s bid to continue to grow in a grocery market increasingly driven by <a href="http://www.theguardian.com/business/2014/may/02/waitrose-supermarket-discounters-upmarket-offers">discounters and price cuts</a>. </p>
<p>Similarly, US supermarket Whole Foods has repositioned itself as the <a href="http://wgbhnews.org/post/showdown-produce-aisle-whole-foods-vs-walmart">“healthiest grocery store” in America</a>. This demonstrates a move away from a price-focused strategy. It appears that Woolworths SA is planning to initially refresh the <a href="http://www.davidjones.com.au/Store-Services/Food/Food-hall">current David Jones Food Hall offer</a>, before potentially launching their own stand-alone sites similar to Woolworths’ <a href="http://www.thomasdux.com.au/">Thomas Dux Grocer</a>. </p>
<h2>Risks</h2>
<p>Woolworths SA was quick to hose down suggestions it was <a href="http://www.brisbanetimes.com.au/business/retail/woolworths-vs-woolworths-djs-new-owner-to-overhaul-food-business-20150624-ghwgqo.html">planning a move into food</a>, citing the current increasingly competitive environment incumbents are operating within. Accordingly, entry into the sector without careful planning would be a risk for Woolworths SA given its current competitive nature. </p>
<p>The lack of an extensive supplier base is also problematic for food retailers entering international markets. Unlike general merchandise and apparel retailers, who mostly manufacture and produce overseas and import into a country, food retailers are highly dependent of domestic supply. </p>
<p>Notably, previous attempts to launch an upmarket grocer <a href="http://www.smh.com.au/business/retail/jones-the-grocer-sparks-high-court-battle-for-l-capital-20150415-1mkwdc.html">domestically have failed</a>. Jones the Grocer’s Australian operations went bust in December 2014. Even in the UK, Marks & Spencer this week signalled the <a href="http://www.retail-week.com/property/-marks-and-spencer-proposes-nine-store-closures-as-it-focuses-on-quality-space/5076300.article">closure of nine of the food stores</a>, suggesting the current location of stores were not a “good fit” for the business. </p>
<p>Clearly, targeting shoppers seeking premium, exclusive food products will represent a very small but profitable segment – if well executed. Careful selection of store locations and securing supplier support could drive long-term growth for Woolworths SA. Following a Marks & Spencer model, possibly co-located food stores within David Jones department stores, may be the safest way to enter the market. </p>
<h2>Winners and losers</h2>
<p>It is evident that Australia is becoming an attractive market for international retailers, with its growing middle class, low unemployment and relatively strong economy. Global players such as Aldi and Costco have already set up shop, <a href="https://theconversation.com/move-over-aldi-lidl-may-be-next-for-australian-market-43185">while others like Lidl</a> and Marks & Spencer are <a href="http://www.powerretail.com.au/news/marks-and-spencer-australia/">rumored to be circling</a>. </p>
<p>As the food and grocery market continues to offer up new segments, new players will continue to enter, bringing with them greater choice for shoppers and stronger bargaining power for suppliers.</p><img src="https://counter.theconversation.com/content/43829/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Mortimer does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While grocers slug it out with discounters, the South African owners of David Jones may be planning to exploit a gap at the upper end of the market.Gary Mortimer, Senior Lecturer, QUT Business School, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.