Aldi’s fresh change bad news for rivals

ALDI’S decision to allocate more space to fresh food – dubbed Aldi 2.0 – is “a game changer” and the supermarket insurgent is again pulling ahead in the price wars, an analysis has found.

Investment bank Morgan Stanley says the German nofrills supermarket chain is likely to open more than 300 new stores over the next seven years in an expansion that will double its share of the nation’s grocery market.

“The Aldi 2.0 stores are the most dramatic move Aldi has made since it first opened in Australia,” Morgan Stanley analyst Thomas Kierath said yesterday. “It’s a game changer.”

Mr Kierath said a refurbishment program of existing Aldi stores that increases the space dedicated to fresh food from 15 per cent to 25 per cent is producing a marked increase in the number of shoppers browsing its aisles.

Privately owned Aldi, which arrived in Australia in 2001, has 483 stores and is spending hundreds of millions of dollars updating ageing outlets.

It has finished 50 so far and plans to have the entire fleet updated by 2020. Mr Kierath said the refurbished stores and their new fresh offering had produced a lift in sales of 13 per cent to 15 per cent.

The uplift would give Aldi even more room to invest in lowering prices given profit margins were generally higher on meat, fruit, vegetables and bakery items, he said.

“Margins tend to be higher in fresh food products, which means the success of the refurbishment gives Aldi more dollars to invest in price,” Mr Kierath said. “We think life gets more difficult for the supermarkets (Coles and Woolworths) post the refurls.”

Aldi continued to pull ahead in the price wars, he said, with an analysis of 350 items showing the German chain was about 18 per cent cheaper than Coles and Woolworths, up from 14 per cent two years ago.

Mr Kierath said the success of the Aldi 2.0 strategy would give the supermarket chain the confidence to grow its store network to 800 over the next seven years.