In September, 2019, the German supermarket retailer, Kaufland, the fourth biggest retailer in the world, announced plans

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In September, 2019, the German supermarket retailer, Kaufland, the fourth biggest retailer in the world, announced plans to enter the Australian market. Kaufland initially planned to launch six sites in South Australia and nine sites in Victoria, a half a billion-dollar plan that would challenge the existing supermarket sector.

The duopoly of Coles and Woolworths has for some time faced strong competition from Kaufland's arch rival in the German market, the fellow-German company Aldi, which opened its first store in Australia in 2001. Aldi now has more than 500 stores in the country.

According to IbisWorld, Woolworths has a 37.5 percent share of the 103 billion-Australian-dollar supermarket and groceries market, with Coles at about 30 percent, discount chain Aldi at 10 percent and IGA (Metcash) on 7.3 percent. Kaufland believed that its entry into the Australian retail market could increase competition, and will raise the level of retail excellence.

By September, 2019, Kaufland had already begun construction on two test stores to be based in Victoria, and hired and commenced training of staff.

“Our Dandenong store marks a tremendous milestone in our development here in Australia, and we are very happy to break ground for our first store in Victoria.” commented a company representative.

“Australia is one of the fastest growing regions in the world, and we are excited to grow with it.

“Our aim is to raise the bar in retail excellence and provide an uncompromising food shop for our customers, by delivering our values of quality, simplicity, variety and price throughout Victoria and Australia.”

Kaufland currently operates in Germany, Poland, the Czech Republic, Romania, Slovakia, Bulgaria, Croatia, and the Republic of Moldova with roughly 1300 stores and 132,000 employees (7News, 2020).

Kaufland initially arrived in Australia in 2017 when it acquired the Le Cornu site in the Adelaide suburb of Forestville for 25 million Australian dollars. It has three more sites under review. Kaufland operates 1,200 stores in 7 countries, with over 150,000 employees across Europe.

Kaufland has the size and scale to take on the Aussie grocery sector dominated by Coles, Woolworths and Aldi given it is backed by the fourth biggest retailer in the world, Schwarz Gruppe.

Aldi and Kaufland share much in common: their country of origin, their industry and that they have a habit of shaping up markets they enter. But they’re not exactly the same. Kaufland stores are typically up to 20,000 square metres in size, which is up to 15 times bigger than an Aldi and five times the size of a big Coles or Woolworths. Kaufland prefer to build free-standing stores on ground level, with their own car parking. For Australian shoppers these stores would be similar in concept to Bunnings and Costco stores in Australia.

Kaufland stores have been described as more like the American retailer Costco than Aldi in that respect, though without memberships (news.com.au, 2020).

Also, the Kaufland range is different to Aldi. They are both cheap, but Aldi only stocks around 1300 different items, mostly their own brands. Kaufland has more like 40,000, according to consultants McKinsey, and it sells real brands.

In Europe, Kaufland is positioned as a ‘discounter’ (like Aldi in Australia), with consumers liking the concept of buying major brands at ‘discounter’ retail prices. Kaufland is also famous for their fresh baked goods (in store) and wine range.

In Europe, Kaufland is positioned as a ‘discounter’. Unlike Aldi, Kaufland’s ranges will be deep and in-store they will offer a breadth of products, such as in-store bakery and butcher/deli. For Australian shoppers the product range would be similar in concept to a full-service supermarket, such as Coles and Woolworths.

Kaufland Australia will open their first 3 stores in Victoria, following a market-entry strategy employed by both Aldi and Costco of firstly establishing a small number of stores in a region to test their product ranges and store concept. Both Aldi and Costco established their first distribution centre (warehouse) to supply these stores and then over time grew by entering other regions and building more distribution centres to support the growth in store locations. Kaufland’s Prospect and Dandenong stores would be used as test stores for the broader expansion across Australia. Once optimal conditions are known, store concepts will undergo substantial tweaking of the model to ensure it was the right one for Australian conditions.

Kaufland’s exact product range for Australia is still under development. Based on Kaufland’s European stores, the following range could be developed for Australia. The Kaufland model involves about 30,000 products across categories including dry groceries, fresh produce, meat, seafood, general merchandise, clothing, toys, hardware and homewares.

The boss of the Australian operations of German discount retailer Kaufland says the group will win over local customers because of its ''one-stop-shop model'' of cheaper groceries and general merchandise under the one roof. Kaufland believes Australian shoppers are increasingly time-poor and Kaufland has the right model for the times.

Kaufland has developed a number of PL brands. K Classic is the basic/entry brand. K 2 Go is ready to eat. K Free is the ‘free form’ range. K Exquisit is the premium/sophisticated brand. Bevola is a speciality brand for H&B (health and beauty) ranges such as hair products, baby care and mens’ grooming. These PL brands could be offered in Australia.

For branded ranges, Kaufland will be unique by having a ‘discounter’ or EDLP (everyday low price) strategy. Australian retailers normally use a mix of EDLP, e.g. Coles ‘down, down’, and high/low pricing for branded ranges.

“Our aim is to showcase the best of Australian produce, alongside the best international products, supported by the private label range of a discount supermarket, all at a price point that is accessible to everyone.” According to a Kaufland spokeswoman. "It means that we offer the best of both worlds.'' A discount supermarket and general merchandise would also be accompanied by a ''high-quality'' private label range.

When choosing a PL product, Kaufland buyers primarily focus on product Quality. They want the best quality product in the market. Secondly, they expect the product, and its packaging to be retailer and consumer friendly. Finally, they do expect low cost prices so they can offer their consumers low retail prices every day.

Kaufland has unveiled plans for what will be one of the Australia's biggest distribution centres to help it compete with Woolworths, Coles, Aldi, IGA and Costco here.

The 110,000-square-metre automated warehouse – bigger than 15 soccer pitches laid end-to-end – to be built in Merrifield in Melbourne's north is due to be completed next year and will service Kaufland's network of large-format supermarkets planned on the east coast. It is substantially larger than state-of-the-art warehouses being developed or recently opened by Coles, Woolworths and Amazon, all of which are investing billions to optimize their supply chains.

Kaufland’s market entry will definitely shake up competition in this retail sector, but senior strategist with Retail Oasis Jessica Sinclair says it’s Kaufland’s compatriot, Aldi – with just 11 per cent of the market – that should be most nervous.

Ms. Sinclair cites three reasons why Aldi will need the best strategic plan to combat the Kaufland assault: “Aldi customers are the most-ripe for poaching because they are more price-conscious; they are more willing to try something new and experience something different; and Kaufland’s no-frills value would definitely appeal to that Aldi shopper, that value-oriented part of the market.”

IBISWorld senior industry analyst Tom Youl agrees that Aldi is the most vulnerable to Kaufland in the short term, adding that Costco – which has managed only 2 per cent market share in 10 years of operation – should also be worried.

“That’s because Aldi and Costco have targeted the cost-conscious consumer,” Mr. Youl says. “Coles and Woolworths are traditional stores with existing brand value and more rusted-on shoppers. They’re positioned in a market that is slower to change.”

But Mr Youl said Kaufland also presented a big risk for lower-end department stores, such as Big W, Kmart and Target.

Kaufland’s range strength will make it a formidable entrant to the market, too, Ms Sinclair says.

While Coles and Woolworths typically have about 22,000 lines, or stock-keeping units (SKUs), and Aldi about 1350, Kaufland is expected to have about 30,000 SKUs. (German media report that Kaufland hypermarkets typically carry up to 60,000 SKUs.)

And it isn’t afraid to wage ruthless price wars, particularly against “arch enemy” Aldi in Germany, where supermarkets are locked in a brutal price war.

In a recent survey by German comparison site vergleich.org, Kaufland came out the cheapest for branded products and performed well in-house brands too, while sister Lidl was the cheapest for house-brand products.

“Kaufland is the clear winner in our evaluation,” wrote Maria Günter, of vergleich.org. “The supermarket offers not only branded products at the lowest price, but also has very inexpensive house brands in its range.”

The two major local players, Coles and Woolies, have laid foundations to survive a hyper competitive market, according to Queensland University of Technology marketing professor Dr Gary Mortimer (News.com, 2019).

“The big two put an end to the price war ahead of the arrival of the powerful German rival. The two revealed a strategy in May (2019) to gain “price trust” from their consumers by removing short-term specials, instead focusing on more permanent lower prices.

“Both have also beefed up their online capabilities and dispersed a fleet of smaller stores into metro areas to cash in on areas with high foot traffic,” according to Mortimer, who believed the inclusion of such a massive retailer into the market was a vote of confidence for business conditions, negating claims made by some retail bosses, such as David Jones’s Ian Moir, that the sector was failing in Australia.

“When a global retailer makes a conscious decision to enter the Australian market, it tends to reject the arguments that there’s a retail recession,” Mortimer said. “Clearly Kaufland understand that the market is ripe for exploitation.”

Kaufland stores also house a full line of discount department store goods, presenting increased competition for the already vulnerable Big W as well as Wesfarmers’ Kmart and Target.

The company’s ultimate success will depend on how quickly it can expand stores to other locations, he says. Aldi, for example, already has around 500 stores since opening its first in 2001, and now commands more than 11 per cent of the market.

An industry commentator has observed that Kaufland’s entry has parallels with Amazon, which took 10 years to be consistently profitable in the US, and is still reporting losses in Australia, but has the patience to ride those losses out and stay for the long term, believing profits will eventually come.

Post script: On 23 January, 2020, it was reported that Kaufland had decided to exit Australia, leaving 200 employees and a string of site developments in limbo (7News, 2020).

“This decision is about focusing business activities in Europe and is in no way a reflection of the efforts of our local employees or management, or the support Kaufland has received from the Australian business community or governments,” Kaufland said in a statement (7News, 2020).

On 23 January this year, the Australian Financial Review revealed that the ACCC “will investigate allegations major fresh food suppliers planned to withhold supply to German retailer Kaufland in fear of reprisal from Coles and Woolworths.

“Suppliers have alleged a formal or informal agreement between leading fresh food companies, including fruit and vegetable suppliers, to withhold supply from Kaufland was one of the factors contributing to its shock decision on Wednesday to withdraw from Australia before opening its first store.

“"It's Masters all over again," said one supplier, referring to the decision of major hardware brands to not supply Woolworths' failed home improvement chain for fear of being kicked out of market leader Bunnings.

"They declared their allegiance to the existing customer base," he said.

"Kaufland realized it was a game they couldn't win in the short term – they would have looked at ten years of losses." (Australian Financial Review, 2020).

How might each of the elements of the marketing mix for sustainability (Pomering, 2017) have been managed by Kaufland in order to gain acceptance of its entry into the Australian market, and, in particular, to help it overcome possible resistance in Australia, especially that concerning the possibility of the ACCC’s investigation, mentioned by the Australian Financial Review?