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Aldi heads west

Consumers in the non-Eastern states look set to get more supermarket competition, with news that Aldi is eyeing an expansion into Perth and Adelaide.

Privately owned supermarket operator, Aldi, is set to announce a significant expansion of its Australian operations this week, with plans to open its first stores in South Australia and Western Australia.

The Australian reports that the company has relocated staff to both states to manage the acquisition of new supermarket sites.

The discount supermarket chain already has more than 200 stores across the eastern states and the ACT, according to the newspaper. Since opening its first store in Sydney in 2001, Aldi has been content to consolidate its position and slowly build up its business and critical mass. It is estimated that Aldi now has a 5% market share of the supermarket sector.

Regularly regarded as the cheapest supermarket operator by consumer groups such as Choice, the move will put further heat on the Australian giants, Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES). The arrival of Aldi forced the big two to rapidly expand their private label ranges to compete on price with the German company, with much of Aldi’s product range made up mostly of in-house brands.

The newspaper reports that South Australia already has a very active independent segment including IGA stores, supplied by Metcash Limited (ASX: MTS), so Aldi won’t just face competition from the big two.

US supermarket warehouse giant, Costco has also recently established operations in Australia, with three stores currently, one each in NSW, Victoria and the ACT. Costco is also likely to expand its footprint into other states over time and sells everything from groceries to clothing and cleaning supplies, appliances, furniture and even tyres. The company also stocks its own private label products.

Foolish takeaway

Woolies and Coles have generally eyed each other as rivals and generally one responds to moves by the other in a similar way, such as increases to petrol discounts. With this new expansion by Aldi, they may have divert some of their attention to their smaller competitor.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.

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