G4111 Supermarkets and Grocery Stores in Australia Industry Report PDF

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G4111 Supermarkets and Grocery Stores in Australia Industry Report...

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AU INDUSTRY (ANZSIC) REPORT G4111

Supermarkets and Grocery Stores in Australia Checking out: Coles and Woolworths have shifted focus from price competition to profit margins Tom Youl | November 2020

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Contents About This Industry........................................... 5

Competitive Landscape................................... 28

Industry Definition..........................................................5 Market Share Concentration....................................... 28 Major Players................................................................. 5 Key Success Factors................................................... 28 Main Activities................................................................5 Cost Structure Benchmarks........................................ 28 Supply Chain...................................................................6 Basis of Competition................................................... 31 Similar Industries........................................................... 6 Barriers to Entry........................................................... 33 Related International Industries....................................6

Industry Globalization..................................................33

Industry at a Glance.......................................... 8

Major Companies............................................ 35

Executive Summary..................................................... 10 Major Players............................................................... 35 Other Players................................................................41

Industry Performance..................................... 11 Operating Conditions...................................... 43 Key External Drivers.....................................................11 Current Performance................................................... 12

Capital Intensity........................................................... 43 Technology And Systems........................................... 44

Industry Outlook............................................. 16

Revenue Volatility........................................................ 47

Regulation & Policy......................................................47 Outlook......................................................................... 16 Industry Assistance..................................................... 48 Performance Outlook Data......................................... 18 Industry Life Cycle....................................................... 18 Key Statistics.................................................. 50

Products and Markets..................................... 20

Industry Data................................................................50 Annual Change.............................................................50

Supply Chain................................................................ 20

Key Ratios.................................................................... 50

Products and Services.................................................20 Demand Determinants................................................ 23

Additional Resources...................................... 51

Major Markets..............................................................24 International Trade.......................................................25 Additional Resources.................................................. 51 Business Locations..................................................... 26 Industry Jargon............................................................ 51 Glossary Terms............................................................51

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Supermarkets and Grocery Stores in Australia G4111

November 2020

About IBISWorld IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching and preparing for meetings, and more time focused on making strategic business decisions that benefit you,your company and your clients. We offer research on industries in the US, Canada, Australia, New Zealand, Germany, the UK, Ireland, China and Mexico, as well as industries that are truly global in nature.

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Covid-19 Coronavirus Impact Update

IBISWorld's analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic: • Demand in the Supermarkets and Grocery Stores industry is expected to rise as a result of the outbreak of COVID-19. Revenue is anticipated to increase by 4.6% in 2019-20, revised upward from 2.3% growth previously. For more detail, please see the Current Performance chapter. • The industry's cost structure is also expected to be affected by the outbreak of COVID-19. Profit is expected to be boosted, as are nominal wage costs. For more detail, please see the Cost Structure Benchmarks chapter. • The outbreak of COVID-19 is expected to limit industry demand in 2020-21, with factors such as a decline in disposable income constraining household expenditure on groceries. For more detail, please see the Industry Outlook chapter. Note: The content in this report is currently being updated to reflect the trends outlined above.

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Supermarkets and Grocery Stores in Australia G4111

November 2020

About This Industry Industry Definition

Supermarkets and grocery stores retail a range of groceries and food products, including fruit and vegetables, bread, cigarettes, canned goods, toiletries, dairy goods, delicatessen items and cleaning goods. Specialist retailers, niche retailers and convenience stores are excluded from the industry.

Major Players

Woolworths Group Limited Coles Group Limited Aldi Stores (A Limited Partnership) Metcash Limited

Main Activities

The primary activities of this industry: Operating supermarkets Operating grocery stores

The major products and services in this industry: Dry and packaged foods Bread and bakery products Meat products Milk and other dairy products Fresh fruit and vegetables Beverages Tobacco products Toiletries, health products and general merchandise

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Supply Chain

SIMILAR INDUSTRIES Fresh Meat, Fish and Poultry Retailing in Australia

Fruit and Vegetable Retailing in Australia

Convenience Stores in Australia

Tobacco and Other StoreBased Retailing in Australia

Liquor Retailing in Australia

Bread and Cake Retailing in Australia

RELATED INTERNATIONAL INDUSTRIES

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Supermarkets & Grocery Stores in the US

Warehouse Clubs & Supercenters in the US

Ethnic Supermarkets

Online Grocery Sales

Supermarkets in China

Supermarkets in the UK

Supermarkets & Grocery Stores in Canada

Warehouse Clubs & Supercentres in Canada

Supermarkets, Grocery Stores and Convenience Stores in New Zealand

Supermarkets in Ireland

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Industry at a Glance Key Statistics

$116.2bn Revenue Annual Growth

Annual Growth

Annual Growth

2016-2021

2021-2026

2016-2026

1.4%

2.1%

Key External Drivers

% = 2016-2021 Annual Growth

0.2%

0.1%

Consumer sentiment index

Real household disposable income

1.6%

-1.4%

Population

Demand from cafes, restaurants and takeaway food services

Industry Structure

POSITIVE IMPACT

$4.9bn Profit Annual Growth

Annual Growth

2016-2021

2016-2026

Life Cycle

Barriers to Entry

Growth

High

Globalization Low

0.5% MIXED IMPACT

4.2%

Revenue Volatility

Capital Intensity

Profit Margin

Medium

Medium

Annual Growth

Regulation

Technology Change

2016-2026

Medium

Medium

Annual Growth 2016-2021

-0.2%

NEGATIVE IMPACT

2,012 Businesses

Concentration

Low

High

Competition

Annual Growth

Annual Growth

Annual Growth

2016-2021

2021-2026

2016-2026

-0.3%

-0.5%

High

Key Trends Price-based competition has eased as major players have focused on profit growth

361k

Increased demand for groceries during the COVID-19 pandemic has boosted industry revenue

Employment Annual Growth

Annual Growth

Annual Growth

2016-2021

2021-2026

2016-2026

1.1%

-0.1%

The ongoing dominance of Coles and Woolworths has deterred new industry entrants Industry operators' prices are forecast to remain mostly stable over the next five years Online sales are projected to become increasingly important for industry operators

$11.8bn

Partnerships with food delivery firms are projected to provide opportunities for expansion

Wages Annual Growth

Annual Growth

Annual Growth

2016-2021

2021-2026

2016-2026

1.9%

1.3%

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Industry Assistance

Kaufland's withdrawal from the industry bodes well for established players

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Products & Services Segmentation

20.8%

8.2%

18.6%

6.8%

18.8%

Dry and packaged foods

Bread and bakery products

Meat products

Milk and other dairy products

Fresh fruit and vegetables

Major Players

% = share of industry revenue

6.5%

Beverages Supermarkets and Grocery Stores Source: IBISWorld

SWOT

STRENGTHS High & Steady Barriers to Entry Growth Life Cycle Stage Low Imports Low Customer Class Concentration Low Product/Service Concentration High Revenue per Employee

WEAKNESSES Low & Steady Level of Assistance High Competition Low Profit vs. Sector Average High Capital Requirements

OPPORTUNITIES High Revenue Growth (2016-2021) High Revenue Growth (2021-2026) High Performance Drivers Demand from cafes, restaurants and takeaway food services

THREATS Very Low Revenue Growth (2005-2021) Real household disposable income

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Supermarkets and Grocery Stores in Australia G4111

Executive Summary

November 2020

The Supermarkets and Grocery Stores industry is one of the most fiercely competitive industries in Australia. However, price-based competition has begun to decrease over the past three years. Nevertheless, the continued expansion of ALDI and Costco has forced the two established industry giants, Woolworths and Coles, to remain price-competitive. In response, Coles and Woolworths have further expanded their private-label product ranges. Smaller supermarket chains have struggled to compete in an increasingly price-competitive industry. Industry profit margins have fallen over the past five years as operators have recorded rising capital investment and wage costs, in an attempt to gain an advantage over competitors. To differentiate themselves from low-cost supermarkets, Coles and Woolworths have increasingly focused on improving customers' shopping experience through store refurbishments and increased online shopping capabilities. These major players are increasingly relying on loyalty programs and promotions rather than discounts. However, weak disposable income growth and often-negative consumer sentiment have encouraged consumers to seek lower-priced goods. Overall, revenue is expected to rise at an annualised 1.4% over the five years through 2020-21, to $116.2 billion. Strong revenue growth in the early stages of the COVID-19 pandemic is expected to give way to weakening demand as economic conditions begin to restrict household expenditure. Industry revenue is forecast to increase by 0.5% in 2020-21. Coles and Woolworths are projected to further expand their private-label product ranges to increase profitability over the next five years. Similarly, they will likely also increase their ranges of prepared foods and meals, as these goods attract higher margins than standard produce. Technology usage is also forecast to increase as major operators aim to reduce labour costs. Industry revenue is forecast to rise at an annualised 2.1% over the five years through 2025-26, to $129.0 billion.

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Industry Performance

Key External Drivers

Real household disposable income Trends in household disposable income affect the industry's performance. During periods of low or falling disposable income, consumers are more likely to focus on household necessities and forego luxury purchases, such as gourmet foods and deli items. However, a greater range of private-label products, which are often cheaper than branded merchandise, has allowed consumers to buy gourmet and discretionary items without paying higher prices. Real household disposable income is expected to fall in 2020-21, posing a threat to the industry's performance.

Consumer sentiment index The consumer sentiment index measures households' perceptions of their finances and the general economy. When consumer sentiment decreases, consumers are less likely to purchase higher priced gourmet groceries and premium products. Conversely, industry revenue generally grows when consumer sentiment increases, as consumers become more likely to purchase higher priced goods. The consumer sentiment index is expected to rise but remain negative in 2020-21.

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Supermarkets and Grocery Stores in Australia G4111

November 2020

Population Population growth affects the number and location of supermarkets and grocery stores. In particular, the age distribution of the population influences the type of products stocked. Population growth also typically increases demand for new housing. New residential developments increase the amount of consumer traffic at existing supermarket locations and can create demand for new stores. Australia's population is expected to increase in 2020-21, expanding the potential pool of supermarket and grocery store customers, and providing an opportunity for industry growth.

Demand from cafes, restaurants and takeaway food services Cafes, restaurants and takeaway food providers compete with supermarkets and grocery stores for consumer income. The number of Australians eating out has increased over the past five years, and households now spend a greater percentage of their income on meals outside the home. Demand from cafes, restaurants and takeaway food services is expected to increase in 2020-21.

Current Performance

The Supermarkets and Grocery Stores industry's competitive landscape has shifted over the past five years. Strong competition between ALDI and the industry's two largest companies, Woolworths and Coles, placed significant downward pressure on prices over the

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Supermarkets and Grocery Stores in Australia G4111

November 2020

first half of the period. However, while competition remains high, direct price-based competition and heavy discounting strategies have become less prevalent over the past two years. As a result, many grocery prices have stabilised after an extended period of decline. Coles reported price inflation of 2.4% in 2019-20, while Woolworths posted price growth of 1.4%. Overall, population growth and the staple nature of many industry products have increased demand for supermarkets and grocery stores. However, weak income growth has encouraged consumers to seek out discounts and lower-priced products, constraining revenue. Industry revenue is expected to rise at an annualised 1.4% over the five years through 2020-21, to $116.2 billion.

COVID-19

The COVID-19 pandemic has had a notable effect on the industry. Most of Australia's food services sector was forced to close during the early stages of the pandemic, pushing consumers toward food retailing. Fears surrounding limited domestic supply fuelled surging demand as consumers stockpiled many grocery items. As a result, consumer expenditure at supermarkets and grocery stores rose by 22.4% in March 2020, according to the ABS. Although demand moderated in April, monthly expenditure on groceries has remained higher into 2020-21 than that reported prior to the outbreak. Fiscal stimulus measures aimed at households, particularly the JobKeeper and JobSeeker payment schemes, have supported industry demand. The surge in social assistance benefits increased disposable incomes in 2019-20, despite a rapid rise in unemployment. However, these assistance measures have been wound back and will be removed entirely by the end of 2020-21, which is expected to negatively affect the industry. Disposable incomes are projected to fall sharply and consumer sentiment is anticipated to remain negative. In addition, weak population growth is expected to limit the increase in potential supermarket customers. Overall, weak demand over the second half of the year is expected to follow the robust revenue growth in early 2020-21. Industry revenue is forecast to grow by 0.5% during the current year.

Changing strategies

Strong price-based competition and price discounting characterised the industry over the two years through 2017-18, and most of the decade prior. In particular, major players lowered prices to hold or boost market share. However, major players have been competing less on price over the three years through 2020-21, after years of discounting constrained profit margins. Coles and Woolworths have shifted their strategic focus from increasing market share to boosting profit margins over the past three years. In June 2019, Coles announced a new strategic direction that does not focus on winning market share or lowering prices. Strategies to retain market share have been incorporated into loyalty programs, including Woolworths' Everyday Rewards and Coles' Flyb...