Aldi has stopped growing, right when we need it most

Instead of taking the fight to the two big supermarkets, Aldi has rolled on its back like a puppy. Just when we needed it most, it let us down.

As the next chart shows, Aldi hasn’t used the uproar over rising prices as an opportunity to charge deeper into the heart of Australia’s grocery market. Quite the opposite.

The pace of new store openings has Aldi growing at about 4% over the past few years, which is lower than population growth. Its store network is shrinking on a per capita basis.

The Aldi website used to boast proudly about its non-stop parade of upcoming store openings, but now I can’t find that page. It does talk about a few “latest store openings”. In Victoria it is bragging about a new store in Morwell, but when you check on that you find it just moved down the road a bit. Net new stores opened in Morwell is zero.

I’m not saying the third big player in the Australian grocery market has decided it prefers a cosy oligopoly to cut-throat competition… but if it did prefer a cosy oligopoly, is this passive approach to the market exactly what you might expect to see? 

Perhaps, but the world is full of possible explanations: for example, a pause for the uncertainty of COVID-19 and then a rising cost of capital is a credible explanation. Or perhaps the very high cost of doing building in Australia horrifies the bean counters in Aldi’s famously frugal accounting departments. 

If Aldi’s German HQ calls for an end to expansion and a cap on capital spending, and decides to spend several years reaping fat profits from its ultra-popular Australian operation, that is its call to make. It is a private business and it need not justify itself to anyone. 

Nevertheless, the lack of competitive zeal in a time when Woolworths and Coles are cranking up margins is disappointing for those who hoped Aldi would scare the living daylights out of our big two.

Over the six months to June 30 last year, Aldi sales rose by a reported 10%. That is a combination of inflation and increased sales. Not a bad result when you’re opening hardly any new stores. 

So are new stores coming or will it stop at 600 outlets? Aldi denies it has a 600-store target but a 2021 article in the Australian Financial Review says the company at one point believed that was the number of Aldi stores the country could absorb. And when I asked Aldi to point to its plan for opening more new stores I didn’t hear back. 

What Aldi has been doing recently is PR gimmicks, such as its food truck offering a plate of dumplings for $1.44. It’s PR genius; some Bondi-dwelling young person will be set for cocaine and Mumm champagne for the rest of the year after coming up with that.

It has also been opening “corner stores”, which are akin to Woolworths’ popular “Metro” stores. They offer more ready-to-eat meals than a usual Aldi. (This store format is counted in the chart above.) These outlets are found in the fancy parts of Sydney and Melbourne. 

Aldi, for its part, says it would like to open new stores.

“As we near our 600th store in just over two decades, we are aware that there are communities in Australia that don’t yet have access to our stores. We are always looking for opportunities to bring our unique shopping experience to new regions — opening our first store in Townsville last November is testament to this,” said an Aldi spokesperson in a statement.

However, they went on to hint that cost issues were preventing them from such expansion.

“As we assess new property locations, our first priority is to ensure our low-cost operating model is never compromised,” the spokesperson said. “Our business model has always been focused on saving customers money to ensure that we continue to lead as Australia’s lowest-price supermarket.”

The suddenly lax attitude of Aldi to aggressive expansion leaves the door open for another competitor. Sainsbury’s has been eating the UK grocery market alive recently. Perhaps it’d like some fresh fields to spread out in? Or Lidl, the long-time nemesis of Aldi, could finally do what it has been threatening to do for ages and come to Australia.

What’s clear is that three big supermarket chains (four if you count IGA, but it doesn’t provide much price competition) are not enough. We need more.