Supermarkets – no longer a defensive safe haven for investors

The supermarket industry has fallen under pressure as Aldi disrupts the age-old battle for market share between retail giants Coles and Woolworths. Looking at the lifecycle for a discounter below, you will see Aldi has already hit a number of significant growth phase milestones: 1. Low prices on private label 2. Introduce some brands at zero profit margin to gain traction 3. Introduce a narrow range of fresh products at zero margin 4. National advertising campaigns to grow market share. The biggest problems with these for the incumbents are the introduction of fresh products and branded goods at zero profit margins – Aldi is seen as cheaper but good quality. Globally, only France has beaten the entry of a discounter to the market, but this came with significant margin pain for the industry. In Australia, the incumbents are already slashing prices on private label products, further consolidating stock in an attempt to reduce inventory costs. We are looking for companies with low dependency on profits from private label and fresh produce. More from Analyst Sondal Bensan here (VIEW LINK)