Supermarket’s ’threat to profits’

INVESTORS risk underestimating the impact of Kaufland’s entry into Australia which is likely to lower profits across the supermarket sector, a leading investment bank has warned.

Morgan Stanley said local investors are not currently pricing in the impact of the global supermarket chain’s entry into Australia’s $100 billion grocery sector.

German-backed Kaufland has bought sites for its warehouse style retail outlets in Melbourne and Adelaide and has told suppliers to prepare for the opening of its first stores this year.

“We view the nearer-term impacts as greater competition for product supply, new stores, and talent,” Morgan Stanley said in a note to clients.

“Over the long term, we think Kaufland’s entry is likely to limit market growth and reduce the prospect of margin expansion.” Morgan Stanley said Kaufland’s entry was likely to drive incremental price discounting in the longer term.