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Speaker 1: Welcome to Fear and Greed Q and A, where we

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Speaker 1: ask and answer questions about business, investing, economics, politics and more.

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Speaker 1: I'm Michael Thompson. Last week, discount grocery chain Aldi reported

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Speaker 1: its Australian sales grew by more than one billion dollars.

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Speaker 1: In terms of sales, it's now the third ranked supermarket

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Speaker 1: with sales of thirteen point three billion and earnings of

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Speaker 1: just over four hundred million dollars in FI twenty five.

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Speaker 1: For comparison, Coals reported sales of forty billion dollars. Woolworth's

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Speaker 1: was fifty one billion. The thing is here. Aldi sales

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Speaker 1: are growing faster at almost ten percent a year. That's

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Speaker 1: around triple that of Coals and Bullies. It's got about

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Speaker 1: eleven percent of the grocery market. It is part of

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Speaker 1: what appears to be a significant shakeup of the grocery sector.

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Speaker 1: And as if Aldi wasn't enough for Coals and Woollies

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Speaker 1: to worry about, a major new survey has now ranked

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Speaker 1: cost Co as Australia's favorite grocery store. Jeremy Barker is

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Speaker 1: managing partner O C and C Strategy Consultants Australia, which

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Speaker 1: has published the Australian Retail Proposition Index. Jeremy, welcome to

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Speaker 1: Fear and Greed.

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Speaker 2: Q and a thank you, Michael, pleasure to be here.

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Speaker 1: Groceries in Australia there's always been a bit of a

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Speaker 1: two horse race. Really, you're either a coal shopper or

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Speaker 1: you're a wall Is shopper. Just how significant is the

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Speaker 1: threat from Costco and ALDI to the dominance of those

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Speaker 1: two big players.

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Speaker 2: Yeah, it's a good question.

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Speaker 3: Look, I guess you question whether it's a threat to

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Speaker 3: the majors or it's a boon for the Australian consumer.

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Speaker 3: But frankly, competition is always a good thing. I think

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Speaker 3: you go back fifteen to twenty years and there was

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Speaker 3: too much concentration in Australian grocery. Now compared to most

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Speaker 3: countries in the world, we had a very concentrated sector.

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Speaker 3: So I think suppliers appreciate there being a bit more competition,

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Speaker 3: and consumers certainly do. Look, as you say, you know

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Speaker 3: the smaller players, but the international Costco and LD are

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Speaker 3: growing faster and achieving good outcomes. And really, as our

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Speaker 3: report says, a lot of it's got to do with

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Speaker 3: being just very consider we're consistent on pricing, very consistent

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Speaker 3: on their proposition, so consumers have come to trust them

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Speaker 3: over time as being very reliable and transparent in terms

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Speaker 3: of their pricing policies.

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Speaker 1: Know that Aldi has been here for quite a while,

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Speaker 1: approaching twenty five years now. Costco a bit less than that,

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Speaker 1: Yet Aldi's really just kind of expanding at quite a

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Speaker 1: rapid rate. Do you think Cols and Willies and we

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Speaker 1: can accept that this is a benefit, this is a

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Speaker 1: good thing for consumers, But do you think Coals and

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Speaker 1: Woollies are alert to this? Do you think that they

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Speaker 1: are taking it seriously or do they still see it

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Speaker 1: as a Colds and Woolies battle kind of along the

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Speaker 1: similar lines as they've always had before, and perhaps not

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Speaker 1: trying the new things that they need to do in

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Speaker 1: order to kind of convince people that hey, we are

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Speaker 1: actually the grocery retailers of the future, not just the past.

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Speaker 2: Yeah.

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Speaker 3: Now, I've got no doubt that Cos and Wilworths are

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Speaker 3: both taking a significant notice now of aldin Costco. And

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Speaker 3: part of the reason is I think the shopping missions

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Speaker 3: are changing. Consumers are perhaps starting with Costco for bulk items,

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Speaker 3: perhaps doing a weekly shop at LD and I don't

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Speaker 3: think Coles and Wilwis want to end up just being

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Speaker 3: the top up shop, No Fresh plus a few other

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Speaker 3: things that prefer to be the big weekly shop.

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Speaker 1: Yeah.

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Speaker 3: So I've got a pretty one year old son who's

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Speaker 3: a student income household by definition, and they do fortunately

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Speaker 3: costco shop and they buy all the big items there,

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Speaker 3: branded items, but in bulk at reasonable prices, and then

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Speaker 3: they top up during the week at an IgA or Coles.

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Speaker 1: Okay, you've taken a closer look at Walworth's as part

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Speaker 1: of this report Coles and Woolies, but Walworths in particular

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Speaker 1: had a shocking year last year. There are allegations of

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Speaker 1: essentially price gouging, and that was across both of the

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Speaker 1: two majors, but then for Woolworth's as well. They had

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Speaker 1: then CEO Brad Banducci walking out of an interview as

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Speaker 1: a pr nightmare for the company. Is it making any

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Speaker 1: headway in efforts to store and rebuild that trust with consumers,

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Speaker 1: which by all accounts was pretty thoroughly broken.

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Speaker 2: Yeah. It's really interesting to see how quickly this has happened.

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Speaker 3: If you look at the pandemic and sort of twenty

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Speaker 3: twenty one, our first year of the survey was twenty

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Speaker 3: twenty one and Cols and Wilwis are both rated in

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Speaker 3: the top ten of trusted retailers in Australia and they

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Speaker 3: were sort of first line responders during the pandemic. People

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Speaker 3: became very reliant upon them and they were seen almost

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Speaker 3: as saving the household drop by being available and amping

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Speaker 3: up their delivery. So it's been a fairly fast fall.

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Speaker 3: I think in twenty three we said, look, all the

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Speaker 3: grosses are down a bit because inflation was coming in.

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Speaker 3: Consumers were blaming the major retailers for for price gouging.

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Speaker 3: But twenty twenty four saw something interesting happened, which was

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Speaker 3: Coals and Wilworth continued to get hammered by consumers, but

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Speaker 3: Aldi and Costco didn't know, so consumers weren't pushing back

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Speaker 3: on Aldi and Costco that I think they felt the

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Speaker 3: pricing was transparent and fair. But certainly Coles and Willis

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Speaker 3: were receiving a lot of negative press, as you said,

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Speaker 3: parliamentary inquiries, a triple C inquiries, and I'm sure that

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Speaker 3: that they're not as bad as everybody made out, but

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Speaker 3: there's got to be some evidence there that suggested that

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Speaker 3: their transparency wasn't what consumers expected.

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Speaker 2: So it's been a big.

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Speaker 3: Four from Grace both in the top ten to now

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Speaker 3: being ranked potentially down. I think that the path is

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Speaker 3: always possible to build back. But to me that there's

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Speaker 3: another thing which is quite interesting. Coles and Wworth are

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Speaker 3: seen is almost identical by consumers on most of the

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Speaker 3: key purchasing criteria. There's very little differentiation between them. So

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Speaker 3: when you have two thirds of the grocery market dominated

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Speaker 3: by two major players who look very similar, then really

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Speaker 3: what they're competing on is proximity.

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Speaker 2: You know, are they close to me?

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Speaker 3: Are they convenient as opposed to some other distinct proposition.

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Speaker 3: And I think that's where Aldi with its low prices,

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Speaker 3: Costco with its volume, and IFN the Ijs and the

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Speaker 3: Harris Farms and the like more of a premium proposition

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Speaker 3: or more local and convenient. So I think Coles and

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Speaker 3: Wilworth need to work out what it is they're competing

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Speaker 3: on and what do this I want to be known

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Speaker 3: for because at the moment they look very much like

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Speaker 3: each other.

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Speaker 1: Yeah, but even if they are compared just head to head,

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Speaker 1: there is a slight difference in the way that they've

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Speaker 1: been ranked in this report in that Woolies is still

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Speaker 1: actually a bit more favorably viewed over Coals, which I

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Speaker 1: thought was genuinely surprising because when Coles reported its results

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Speaker 1: in August and Woolies did at the same time, though

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Speaker 1: one day after the other, Woolies got hammered and Coles

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Speaker 1: was loved by investors. But you're saying that perhaps consumers

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Speaker 1: may be seeing it a bit differently.

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Speaker 3: Yeah, I think the consumer there was a bit of

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Speaker 3: a gap between consumers and investors. I think with these

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Speaker 3: two brands at the moments, war Wors I think has

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Speaker 3: always had a little advantage from that comsumer perception that

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Speaker 3: they started a very long time AYO with the fresh

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Speaker 3: food guys, and I think built a bit of a

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Speaker 3: buffer which was difficult for Coals to bridge. But we

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Speaker 3: saw them both being severely hammered by consumer perception over

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Speaker 3: the last three to four years, and we've seen a

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Speaker 3: little bit of a bounce back for Wars, but still

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Speaker 3: well below i ga LD COSTCO.

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Speaker 1: I think is a really interesting story, though, isn't it,

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Speaker 1: Because it has been growing and growing and growing, and

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Speaker 1: you can see them trying new things, and in particular

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Speaker 1: say this partnership with door Dash, allowing them to access

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Speaker 1: the online delivery market as well. Ok, you cannot see

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Speaker 1: that momentum slowing at all anytime soon.

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Speaker 2: Yeah.

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Speaker 3: Look, it's actually I think you said twenty five years,

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Speaker 3: which feels about right. It's been a very deliberate, long play,

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Speaker 3: very good strategy. They started on the East coast, they

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Speaker 3: waited for the right locations, they built up demand. They've

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Speaker 3: got that quirky middle aisle where you can buy interesting things,

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Speaker 3: but there's a strong value proposition there which consumers have

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Speaker 3: grown to really appreciate. So, as I said before, I

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Speaker 3: think that they're doing a quite a nice job of

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Speaker 3: capturing a large chunk of the shop and trolley now

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Speaker 3: and consumers are perhaps topping up elsewhere and that's going

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Speaker 3: to be hard for Coles wal Worst to counteract.

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Speaker 1: All Right, Away from groceries, there were some other interesting

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Speaker 1: findings in the report. Bunnings took the top spot overall

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Speaker 1: as Australia's favorite retailer. What is it about Bunnings that

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Speaker 1: just Australians connect with it so much? And when Masters,

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Speaker 1: when they launched trying to replicate bunning success, just failed miserably,

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Speaker 1: So what is it about Bunnings.

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Speaker 3: Look, I think, as you say, it seems quite amazing

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Speaker 3: and it's it's quite consistent across age groups. We break

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Speaker 3: the survey into the gen Z, Millennials, boomers, et.

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Speaker 2: Cetera, and Bunnings is pretty.

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Speaker 3: Equally loved by by all the age groups, and it's

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Speaker 3: been in the top three for all those age groups

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Speaker 3: out the last five years. So very strong. Look, I

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Speaker 3: think it's it's very consistent. Clearly, it's it's done a

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Speaker 3: fantastic job of becoming.

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Speaker 2: The category the category leader.

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Speaker 3: It's obviously got the balance right between branded goods and

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Speaker 3: its own private.

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Speaker 2: Label as well. We all know that a lot of

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Speaker 2: the Bunning's product itself is sort of soul sourced, but

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Speaker 2: it still.

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Speaker 3: Seems to be able to maintain enough branded presence that

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Speaker 3: consumers feel they've got range.

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Speaker 2: And they're going into new categories now.

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Speaker 3: The last couple of years they've gone into pet, they've

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Speaker 3: gone into assistive technology, so they are branching out a

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Speaker 3: little bit as well.

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Speaker 2: Yes, look at a very strong player.

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Speaker 1: Obviously, speaking of category leaders, Dan Murphy's is the favorite

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Speaker 1: liquor retailer. But you point out in the report that

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Speaker 1: there are some big moves happening in the sector, and

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Speaker 1: next year may see a sizable challenge from Cold.

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Speaker 2: Yeah, it's interesting.

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Speaker 3: Dan Murphy's if you start with them obviously an undisputed leader,

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Speaker 3: and I think they did a really nice job. If

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Speaker 3: you go back to when they expanded nationally, it had

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Speaker 3: a very strong proposition in Victoria, but then their expansion

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Speaker 3: was largely through acquisition of great bottle shops, so they

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Speaker 3: would buy really good retailers in each of the sort

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Speaker 3: of the areas they went into it and make them better.

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Speaker 3: So the dan Murphy's brand was strong, but it was

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Speaker 3: also had had very good sites and first choice by

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Speaker 3: comparison sort of tried to roll at the network afterwards

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Speaker 3: and did a predominantly through greenfield sites. But when you

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Speaker 3: open up a greenfield site and an established suburb, you

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Speaker 3: have to start your market chair from zero now, whereas

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Speaker 3: dan Murphy's was buying fairly well run bottle shops with

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Speaker 3: higher market chair and sort of cemented those positions. But

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Speaker 3: dan Murphy's has also come off in terms of consumer

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Speaker 3: perception a little bit over the last couple of years.

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Speaker 3: And there's got to do with choice, it's got to

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Speaker 3: do with sort of product range, et cetera. While I

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Speaker 3: think you'd argued Dan's has got a very broad range,

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Speaker 3: I do think consumers have caught on to the fact

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Speaker 3: that a lot more of it is now private label

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Speaker 3: or our own and exclusive, particularly commercial wines under ten

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Speaker 3: under twenty dollars, a very very large order that is

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Speaker 3: now private label and exclusive, So I think that's become

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Speaker 3: a bit more obvious to consumers. They've also lost their

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Speaker 3: way a little bit. Dan's starter was a bit more

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Speaker 3: of a warehouse feel, sort of a bit of a

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Speaker 3: volume seller, and now that looks like they're trying to

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Speaker 3: be more of a well, they're trying to cover all bases.

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Speaker 3: Fine wine Retailer's still got the big boxes there as well,

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Speaker 3: so it says they've got a little bit of perhaps

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Speaker 3: of work to do to find their way again.

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Speaker 2: On the other side, Cole's got the three brands.

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Speaker 3: Liquor Lands sort of the first choice vintage sellers. Bold

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Speaker 3: move because they're collapsing the three brands into one effectively,

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Speaker 3: and interestingly, our studies suggested Gland isn't necessarily the most

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Speaker 3: loved brand amongst the three first choices, has made some

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Speaker 3: brand in recent years and vited Sellers has got a

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Speaker 3: strong cohort following as well, so they are giving up

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Speaker 3: a fair bit in dropping those other two brands and

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Speaker 3: concentrating on the Galand it's.

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Speaker 1: A bit of a gamble. Now we are running out

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Speaker 1: of time, but we do just need to talk very

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Speaker 1: briefly about the Chinese e commerce giants Timu and She

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Speaker 1: and they are ranked in this report as the least

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Speaker 1: trusted brands in Australia. But the thing that I don't

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Speaker 1: get right is that doesn't seem to slow them down

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Speaker 1: and consumers are still buying these brands are still consuming.

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Speaker 1: Is it that it's younger demographics and perhaps trust isn't

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Speaker 1: as important to them as just price and convenience.

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Speaker 2: Look, I think trust is still quite important to young consumers.

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Speaker 3: In fact, one of our finals is we think young consumers, well,

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Speaker 3: they're quite fragmented, are quite a values driven cohort. For example,

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Speaker 3: sustainability is more important to them than older generations and

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Speaker 3: for I think over seventy percent of that cohort sustainability

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Speaker 3: as one all of the factors they consider when they when

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Speaker 3: they make a purchase, which is ironic given their adoption

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Speaker 3: of the Chinese players. As you say, look, I think

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Speaker 3: there's there's always a bit of a desire for that

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Speaker 3: discount player. I don't think people have high expectations of quality.

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Speaker 3: I think they think it's I need something. It doesn't

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Speaker 3: need to be the best, I just need it. Perhaps

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Speaker 3: Amazon feels a little expensive to me these days.

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Speaker 2: So it's filling a need.

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Speaker 3: But as you say, very low on trust rankings, and

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Speaker 3: I think long term success is probably pretty tightly a

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Speaker 3: lined to being a trusted retailer. I think in the

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Speaker 3: near term they've got some access, they've got some share

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Speaker 3: gain through being cheap and cheerful, but I don't think

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Speaker 3: it's a long term profitable position for them.

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Speaker 1: All right, Jeremy, thank you for talking to Fear and Greed.

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Speaker 2: It's been a pleasure. Michael.

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Speaker 1: That was Jeremy Barker, Managing partner O C and C

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Speaker 1: Strategy Consultants Australia. If you've got something that you'd like

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Speaker 1: to know, then please send through your question on LinkedIn, Instagram,

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Speaker 1: Facebook or at Fearandegreed dot com dot au. I'm Michael

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Speaker 1: Thomson and it's Fear and Greed Q and a