As we welcome in 2014, Senior Business Analyst Nick Miles looks ahead and explores some of the trends and developments that we are likely to see emerge from Australia's dynamic and exciting grocery market over the next 12 months.
1. Thinking 'multichannel' will unlock new areas of growth
After years of supermarket dominated retailing, the Australian grocery market is becoming increasingly competitive. The growth of Aldi and Costco is giving shoppers more choice than ever before. Metcash is about to start initiating its new strategy, focusing the IGA store network on taking advantage of its position as local neighbourhood supermarket and convenience stores that are privately owned. And Coles and Woolworths continue to invest in new and existing operations, improving the offer for shoppers. As Costco invests a further AU$110m into opening new stores in Adelaide and Brisbane in 2014 and Aldi marches on with its AU$2bn investment of expanding operations to South and Western Australia, new retailing channels are increasingly emerging and changing shopping habits for good. Therefore, retailers and suppliers will need to continue adapting in order to both grow and protect their businesses in 2014 and beyond.
2. Private label investment shifting focus
One of the main ways that both Coles and Woolworths have tried to compete with the growth of Aldi in recent years is through their investment in private label products, mainly in the budget and mid-level tiering bracket. However 2014 is likely to see more investment into the emergence of both premium and specialist private label brands, as the two retailers look towards these ranges in order to differentiate their offering. From recent visits to both retailers' stores you can see how Woolworths Gold and Coles Finest premium private label brands are featuring more prominently in-store as new lines are introduced, with new specialist brands and ranges also on the increase. These ranges are both bringing innovation to categories but also, according to Woolworths supermarkets boss Tjeerd Jegen, targeting the growing demand for 'affordable indulgence'.
3. Healthy and convenient living on the increase
Many are predicting that the next 12 months will be dominated by the 'battle of the celebrity chefs'. In October 2013 the two leading retailers recruited Heston Blumenthal (Coles) and Jamie Oliver (Woolworths) as their new front men to promote fresh and affordable healthy food. Both retailers will hope that the partnerships will significantly increase their fresh food sales, which continue to under index verse their performance of dry grocery. We can expect both retailers to use the chefs to promote better, affordable and healthier fresh food for all the family, driving the message away from price towards quality. With Heston also developing his own exclusive range of seasonal products for Coles, the retailers will also clearly be looking to the chefs to help raise the quality image of their fresh private label ranges, such as ready meals.
4. New price battlegrounds to be drawn
2013 will be remembered for the fuel docket discounts that exploded onto the market. However, with both Coles and Woolworths having voluntarily decided to cap the discounts they offer on fuel from the 1 January 2014 things are about to change. There is no reason to suggest that the price competition in the Australian market will decline, however it would be naive to suggest that both retailers will not have been working on new marketing initiatives to take the place of the fuel discounts. The success of the fuel vouchers was down to the fact that they delivered targeted value for shoppers, regardless of the new promotions that we will see introduced in 2014, the ones that deliver relevant value will be those that will increasingly standout.
5. Small store retailing - a gap waiting to be exploited?
As opposed to other markets around the world, where new store development has switched to focus on smaller stores, both the Australian market and new store development in 2013 continued to focus on big box retailing. Are things about to change? IGA has recently split its food and grocery business into separate supermarket and convenience operations, citing convenience as a key area through which it believes it can drive growth. In September 2013 we saw Woolworths register the trademark 'Woolworths Local' and create imagery for a new brand 'W Local'. And 2013 also saw Woolworths open four new inner urban smaller format stores, such as the one at Woolloomooloo in Sydney and Coles continued its investment programme to improve the performance of its Coles Express stores. It seems clear that there is a strong growth area to be exploited in the Australian market, however the retailer that is brave enough to go after it will need to have the right format, operating model and convenience-orientated ranges for it to be a success.
6. Online will continue to outperform the market
Online grocery retailing in Australia, albeit from what is a relatively low base compared to many European markets, is forecast to continue experiencing some of the fastest growth globally in 2014. According to a study by the ARC Centre of Excellence for Creative Industries and Innovations and Swinburne University of Technology, three in ten Australians shop online once a week, this compares to two in ten New Zealanders and one in ten Swiss. After a plateau between 2009 and 2011, online retailing has again picked up with monthly average spend growing 5.8% in the last two years, to AU$218. With Woolworths and Coles continuing to invest in their online platforms, click and collect services and mobile technology, those suppliers that are increasingly investing in understanding the online opportunity now, will be best placed to benefit in the future.