A lack of loyalty by supermarket shoppers will only complicate the turnaround of Woolworths Limited (ASX: WOW) and Metcash Limited (ASX: MTS) with a leading fund manager warning that the latter is doomed to fail.
The latest findings by Roy Morgan Research showed that 77% of the nation's 14.2 million grocery shoppers visit at least two different supermarkets in an average four weeks.
The research, which was released on Tuesday, also found that those shopping at Metcash owned IGA supermarkets were the most loyal with 30% of them choosing to only shop at IGA.
Those going to Woolworths and Wesfarmers Ltd's (ASX: WES) controlled Coles Supermarkets were much further behind with only 25% and 24% of them, respectively, shopping exclusively at their favorite supermarkets.
Aldi shoppers were the least loyal as 93% of them would go to other supermarkets to supplement their grocery run.
Roy Morgan explained that shoppers lack of loyalty to Aldi is not surprising due to its limited range of products. Shoppers can't find everything they need at the German discount chain and are forced go elsewhere.
At first blush, the research findings seem to bode well for Metcash. But loyalty doesn't count for much in the supermarket war that will mainly be won on price. Remember Dick Smith's failed attempt to promote "Australian made" groceries?
Also, Aldi's profitability is the envy of the industry and it has achieved that by single-mindedly focusing on price. The other three supermarkets just can't compete on that front with the no-frills foreigner.
Magellan Financial Group Ltd's (ASX: MFG) fund manager and founder Hamish Douglass cast another long shadow over Metcash by predicting its demise within 10 years. You can read Ryan Newman's article on this here.
Coles and Woolies have a 70.3% share of the market, while Aldi and IGA hold an 11.6% and 9.5% share, respectively, according to Roy Morgan.
Douglass believes that Coles and Woolies will control around 80% plus of the market and Aldi will have 15%, reported the Australian Financial Review.
I think the estimate for Aldi is too conservative given its aggressive expansion plan.
Coles is seen as the best placed to face the competitive threat, while I think it is too early to try to pick the bottom of Woolies or Metcash share prices, even if you thought that Metcash had a fighting chance.
Perhaps the only way for Metcash to survive is to mimic the no-frills advantage of Aldi given that it is most able to copy the German's strategy of having smaller format stores.
