May 19, 2020

Woolworths, Coles feeling heat from new competition

3 min
Woolworths, Coles feeling heat from new competition

Australian supermarket chain giants Woolworths and Coles have challenges ahead of them, as new competition could cause significant change in the industry.

International discount stores Aldi, Lidl and Costco each offer consumers similar products for significantly lower prices. After Coles and Woolworths dominated the grocery market each of the past two decades due to the lack of any real competition, they are now in danger of staying ahead with its world-leading profit margins and dominant market share.

RELATED TOPIC: Wesfarmers vs. Woolworths: which has the upper hand?

With little competition and an ability to lean on suppliers in an effort to keep costs down, Woolworths’ and Coles’ profit margins increased over the last 15 years from three to eight per cent. Now, experts believe grocery prices will drop across the board once Australians are offered more options.

Woolworths is trying to minimize the damage done after its sales figures were recently slashed, while Coles is almost finished with the completion of its investment turnaround initiative that it started five years ago, which has resulted in better sales results.

The way Woolworths and Coles handle its new competition in Australia should be a good indicator of how the businesses will thrive over the next decade. It’s probably even more important to Woolworths, as supermarket revenue makes up the majority of its earnings, compared to only 40 per cent of earnings for Coles’ owner Wesfarmers.

RELATED TOPIC: Wesfarmers' profits see in new MD of Coles

The two companies could look to United Kingdom supermarket chain Tesco in an effort to find out what to expect in the future. When low-cost competitors entered its market, Tesco’s share price dropped by 50 per cent within five years.

Aldi, a German discount chain, has 9,000 stores in 18 different countries. Driven behind lower prices, its success in quickly gaining market share in new places has gained attention across the globe, as it took over 10 per cent of UK market share over a 25-year period. However, Aldi had an even bigger and faster impact in Australia, as it took nearly 10 per cent of market share in 10 years.

RELATED TOPIC: Costco Given the Go-Ahead to Open a Store in Queensland

With plans to gain a presence on the east coast, Aldi is looking to expand through South Australia and Western Australia. Lidl, another German supermarket chain, also experienced some international success and is planning to open its first Australian store later this year in Melbourne. Costco, an American discount giant, has a subscription model that has been very successful over the years. In fact, the majority of its earnings come from its $65 annual membership fee.

If the UK example is a valid expectation, Coles and Woolworths may struggle with lower margins and a reduced market share. The only difference is these two major Australian companies have an advantage of being able to learn from the experiences of other supermarket giants, and therefore can adapt to the changing industry dynamics.

Let's connect!  

Check out the latest edition of Business Review Australia!

Share article

Jun 8, 2021

Timeline: India takes unicorn leap with six in five days

Kate Birch
2 min
We chart an historic week in India’s startup tech industry, where from April 5-9 the country achieved six unicorns

We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.

April 5: Meesho

India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.

April 6: CRED

Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.

April 7: API Holdings / Groww

The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.

April 8: ShareChat

New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.

April 9: Gupshup

AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels. 


Share article