Kaufland to launch $325m war chest

Kaufland to launch $325m war chest

1 March 2019

German supermarket giant Kaufland is ready to wield a $325 million war chest during its upcoming launch in Australia, as it battles heavyweights Woolworths, Coles and Aldi for a slice of the $90 billion supermarket sector, reports The Australian.

After receiving an injection of $43 million capital in 2017, Kaufland has just received another $145m from its German parent—The Schwarz Group—its single biggest funding instalment to date.

“This capital increase reflects the importance and long-term commitment to our expansion,” a spokeswoman for Kaufland said.

“It marks our continual investment in Australia both now and for the future, through the creation of jobs, competition and opportunity.”

Kaufland has announced that it will begin recruiting area managers next month.

Its high-profile hires so far have included former Woolworths and Metcash executive Mark Hewlett, who recently returned after six months’ training in Germany to take up a leadership role as director of supply chain, logistics, and sales.

The Schwarz Group, which owns Kaufland and Lidl, is the fourth largest retailer in the world, operating in more than 26 counties and generating more than US$100 billion in sales every year—significantly more than Australia’s Coles and Woolworths combined.

Morgan Stanley reports Kaufland is expected to open between 7 to 10 stores in the first year and 8 stores each year over the next 5 years—occupying sites vacated by Bunnings, Masters, Target and Big W—taking its national footprint to 48 stores and lifting sales to $2.8 billion by 2025.

Based on its market penetration in Europe, where Kaufland has more than 1,266 stores, Morgan Stanley believes there is scope for between 133 and 295 Kaufland stores in Australia.

Kaufland, best described as a “hypermarket”, is similar in many ways to US Costco – a combination of discount department store with a substantial food and grocery offer—all at very low prices.

The Master Grocers Association (MGA), which represents independent retailers such as IGA and Foodworks, is opposed to Kaufland’s accelerated development plans, saying the company was overriding local decision-making processes by seeking state government intervention to mass rezone land in Melbourne, reports Channel News.

The chain is also set to compete up against Betta Electrical, Bing Lee and smaller electrical and appliance retailers by selling TV’s and sound gear as well as small appliances.

The MGA has launched a Save Our Shops campaign, saying the German retailer poses a “major risk to any family enterprise and private business”.

But Gary Mortimer, an associate professor in marketing and international business at Queensland University of Technology, believes smaller independent businesses may have little to worry about.

“Firstly, the business models are very different, attracting a different consumer, seeking a different value proposition – convenience store versus hypermarket. Few will drive to these outer lying suburbs, park and enter these massive stores to pick up a few items,” he told Inside FMCG.

“Secondly, ‘a rising tide lifts all boats,’ he says. “These large destination hypermarkets will draw in consumers from other areas, meaning other local retailers win out from extra foot traffic.

“So, rather than demonstrating against the entry of this new retail powerhouse, maybe it would be better, more productive, to focus on points of difference—faster, friendlier service, expert advice and product knowledge, local produce or exclusive ranges.”

According to The Australian, Kaufland is possibly only a year away from opening its first store.