Grocery Retail Market
The Australian grocery retail sector is worth AUD135 Bn and is dominated by 4 main retailers who account for 80% of the market; Woolworths, Coles, Aldi and Metcash. Metcash is the country’s largest grocery wholesaler and its retail brands include IGA, SupaIGA (supermarkets) IGA X-press (convenience stores), IGA Fresh, Foodland and Friendly Grocer.
The Independent Sector also has strong regional players such as Drakes (South Australia and Queensland) and Harris Farm Markets (New South Wales and more recently Queensland). Other companies include Australian United Retailers Limited (AURL) which operates nationally through the FoodWorks brand, and Costco. The industry had also been gearing up for the entrance of German discounter, Kaufland, but having invested heavily in real estate, announced their surprise exit from the Australian market in 2020.
Department store David Jones is another player in the market with its premium food-halls and standalone food stores. It has recently undergone a strategy review to streamline its food offering with the closure of some stores, revamping others and an increased focus on e-commerce.
Amazon has also been competing in the grocery market since 2018, offering a limited range of ambient food and beverages under Amazon Pantry. It is anticipated that Amazon Fresh may enter the market over the next few years and continue to use low-price strategies to gain more market share.
The ongoing dominance of Coles and Woolworths has deterred new industry entrants.The most recent larger player to enter the bricks and mortar retail space was Costco, opening its first Australian store in Melbourne in 2009.
Market Share
The 4 main retailers are Woolworths, Coles, Aldi and Metcash and account for over 80% of the total grocery market.The Woolworths Group is the market leader with a share of 37% of the market followed by Coles 28%, Aldi 10% and Metcash 7%.
The market share of the two major players has marginally declined over the past five years, mostly due to the growth of Aldi and Costco. Metcash's decline in revenue and market share has partially offset the rise in concentration attributable to Aldi's growth.
Over the coming years, Aldi's revenue growth is anticipated to be more organic, rather than driven by expanding store numbers which it has previously done. The company is reaching relative saturation in key markets, including regions it has only recently entered such as Western Australia and South Australia.
Over the past 5 years, the industry has also been affected by strong growth among food delivery service firms, such as UberEats and meal-kit delivery businesses,such as HelloFresh, Youfoodz and Marley Spoon, with their innovative technologies being a notable source of disruption. A number of online grocery delivery start-ups, like Milkrun, have also burst onto the scene in the wake of the COVID-19 pandemic boasting short delivery times for a reasonable price. Food delivery services have boosted competition from foodservice firms, such as restaurants and fast-food enterprises.
Liquor Retail
Australia’s liquor retail sector was worth AUD$15.2bn in 2023. Over the past five years, Endeavour Group and Coles have maintained market dominance as the two largest players in the industry and account for 57% of the market. Consequently, these companies have been able to reduce the shelf space dedicated to branded products to promote their own higher-margin, private-label beer, spirits and wine. This factor has placed pressure on the smaller independents, which have increasingly joined retail banner groups to improve their buying power. The industry as a whole has also faced rising competition from exclusively online liquor retailers. Endeavour Group and Coles have since made greater investment in this space such as acquiring online alcohol delivery services, offering 30 minute click and collect services, same day delivery and partnering with UberEats.
Industry Growth Drivers
· Sustainable competition
In the last couple of years, price-based competition has eased as major players have moved their focus to profit growth. In 2024, as in the previous couple of years, it is expected to see more less variable pricing and more consistent “value”offers as players shift to a stronger value proposition and convenience offer. The major players are also increasingly relying on loyalty programs and promotions rather than discounts.
· Private Label
There has also been big a shift in Private Label over recent years. Aldi has legitimised supermarket private label products and Australian shoppers have become more trusting of “no-name”brands and this sector is predicted to continue to grow significantly. Coles and Woolworths have expanded their private label offering and are projected to further expand ranges, up to 40% in some cases, with a strong focus on the prepared foods and meals categories as well as alcohol.
· Technology
Online sales are projected to become increasingly important for industry operators and there have been major advances in the last 3 years due to the pandemic.
To improve their online grocery operations, Coles and Woolworths have been investing heavily in supply chain optimisation as well as in store systems, mobile applications and online platforms. Coles' model focuses on centralised, heavily-automated distribution centres in partnership with Ocado to improve efficiency and Woolworths' focus is on micro-fulfilment centres.
Metcash entered the online grocery sector in 2020 with the launch of IGA Shop Online. Although this was partially in response to the COVID-19 pandemic, the company is also attempting to leverage the continued rise of online grocery shopping.
Aldi has now signaled its intention to enter the online sales segment over the next five years, heightening industry competition.
· Improving the shopping experience
Coles and Woolworths have increasingly focused on improving customers' shopping experience through store refurbishments and increased online shopping capabilities. They have been transitioning towards market-style formats, particularly in regard to fresh food sections as well as moving towards smaller metropolitan stores with value-added products and pre-prepared foods.
IGA and Foodland businesses have been facing the perfect storm over the past decade with increased price competition, Coles and Woolworths rolling out smaller format convenience-style stores, the growth in online grocery shopping and the restrictions of a franchise business model.
· Conscious Consumption
More and more consumers are looking for products that have a positive social, economic, and environmental impact. Consumers are paying more attention to a company’s values not just in terms of sustainable packaging and the transparency of ingredients, but also factors such as supply chain, operations, labour, logistics and power use.
· Australian made
As the cost-of-living soars and supply chain disruptions continue,there is a greater realisation that locally produced products have many advantages, including supporting the local community and economy. Easier online access to local products is already driving the uptake of home grown brands in Australia. Data from Mintel shows that Australians generally believe locally made products deliver on taste, quality and trustworthiness compared to imported products.
· Health& Wellbeing
Health, wellness and the environment continue to be major focuses among Australian consumers and as a result the healthy eating and free from categories are booming along with sports nutrition. Traditional snack categories such as confectionery and sweet biscuits are set to record modest growth, with consumers instead embracing other packaged foods as a healthy on-the-go snack.
Inline with increasing concerns about health and wellness, consumers are seeking better quality and healthier ingredients in their packaged food products. They are also looking for better for the planet offerings in their food as well asin packaging. More people are adopting “flexitarian” lifestyles where they are consciously choosing to have less meat in their diets with “meat free” days and are seeking alternative sources of protein. Changing lifestyle trends have also driven demand for fish and seafood, offering a premium alternative to meat as a rich protein source along with plant-based foods. This said, convenience continues to be a main driver for many consumers leading them to look to packaged food. This has constrained growth of fresh food especially as consumers looking for meat alternatives are buying meat substitutes, tracked under packaged food.
Health and wellness also remain key issues defining the soft drinks industry in Australia. While all major manufacturers now offer low and sugar-free drinks to alleviate these concerns, many consumers remain concerned about the safety of artificial sweeteners so products with natural sweeteners are seeing significant growth. There is also a boom in the zero and low alcohol beverage category with consumers looking to cut out or reduce alcohol consumption or find a healthier alternative.
Potential Opportunities
• Free From products
• Vegan products
• Organic, healthy and natural products
• Alternative sources of protein
• Plant-based
• Meal kits
• Ready Meals
• Private label
• Healthy Snacking
• Premium soft drinks
• Premium spirits
• Low or No ABV beverages
Considerations and Doing Business in Australia
Australia is a significant producer of a wide variety of agricultural and food products and buying local is more pertinent than ever. There is a real focus on “Made/Grown in Australia” labelling and marketing so there therefore needs to be a strong unique selling points for imported products. That said, international suppliers remain a vital part of the industry. Portion sizes are increasingly important too as consumers want quality over quantity and they expect packaging to be informative and environmentally responsible. There is also the need to offer innovative food products to break into what is a highly competitive food retail sector as most categories already have substantial market leaders.
Logistics and distribution are major factors due to the enormous scale of the country. The climatic and industrial environment varies as do market conditions, particularly between States. A good partner with national coverage is therefore vital in order to maximise sales. Many Australian companies provide a nationwide distribution network, either with interstate warehousing and distribution or by alliance with other distributors. There are also strict quarantine regulations with regard to fresh produce, meat and dairy products so it is key for all parties to understand the relevant procedures and requirements.
The commercial environment in Australia is regarded as exceptionally friendly and an attractive place to do business. Australians are open to giving new products and ideas a try. Apart from a very strict quarantine regime it offers few barriers to entry, a familiar legal and corporate framework as well as a sophisticated yet straightforward business culture.
With the Australia-UK Free Trade Agreements now in place and negotiations well under way for the Australia-EU FTA, market access is improving significantly for imported products. Exporting to Australia can also be a gateway to other markets in Asia-Pacific due to close trading links and free trade agreements.
Tradeshows 2024-25
Fine Food Australia: 2-5 September 2024, Melbourne
AltProteins: 10 October 2024, Melbourne
Foodservice Australia: 18-20 May 2025, Melbourne
Naturally Good: 26-27 May 2025, Sydney
If the Australian market is of interest or you are looking to grow your export business, do not hesitate to Get in touch.
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