Innovative grocery retailers can still compete with the big boys

There was an in-depth report on one of the free-to-air TV channels last week about the power of Woolworths and Coles. The main thrust was that both retailers move into small towns – the report covered a mix of regional towns in Victoria, NSW and Queensland – and offer lower prices due to their greater size and buying power.

Previously loyal, local shoppers stop shopping from the smaller local stores and so these smaller stores have to close. The thrust is that large retailers abuse their power to put small retailers out of business. The same story has been running in the US, UK, France and the Netherlands for many years. Differing brand names – including Walmart, Tesco, Carrefour and Ahold – but the same outcome.

I may be a little naïve but I do believe that free market forces deliver the best prices to shoppers. Changes in the ways we can shop, and what we shop for, also drives competition. And I also believe that there is always room for new, innovative ways to grow in retail, against all the odds.

Bakers Delight and Kogan have carved out two very successful businesses against huge scale in their chosen retail sectors. The large are always at risk of being out manoeuvred, as their scale is one side of a double-edged sword. It should make their pricing very attractive to shoppers, but it makes their ability to implement new and exciting innovations for shoppers on a large scale slow. Nothing radical there.

In the UK this month two little but large retailers have just triggered what could be the largest grocery price war for a decade. A price war which will see the cost of living for UK shoppers drop significantly, along with the profits for the whole grocery sector. Morrisons is the UK’s weakest large grocer, struggling against the strongest large grocers like ASDA-Walmart and Tesco.

But the real issue is that Morrisons is having its lunch eaten by two small format, small range German grocers. ALDI, who many will know, and its “stolen at birth almost twin sister” Lidl. These two smaller format stores have been growing at a fast rate over the past 10 years. Not a problem when you’re only a couple of per cent of the market, but a big one when you pass 10% and are still growing fast, by attracting shoppers from the largest grocers.

So Morrisons announced that it will be dropping the price of 1200 key everyday shopping items. The items that make up 80% of ALDI and Lidl’s retail own brand offering. The response is directed at ALDI and Lidl but everybody in the sector will need to follow if they are to keep their shoppers in their stores each week. Prices will dip for every shopper in the country in every grocery store.

So what? The UK is a long way from Australia. Well the reality is that although Woolworths and Coles are dominant today, their dominance, and shelf prices, have dropped over the past decade. Shoppers are getting better prices, because of competition between each of them but more importantly because ALDI, Costco, Bakers Delight, Harris Farm Markets and a wide range of very well run regional multi-store, independently-owned stores are still growing innovatively.

Kevin Moore is a retail expert and the chairman of Crossmark Asia Pacific Holdings.