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Are Woolworths Limited and Wesfarmers Ltd shareholders at risk from Aldi?

The competitive pressure that new supermarket entrants such as German-based Aldi and US-based Costco have been exerting on the smaller Metcash Limited (ASX: MTS) is well known by shareholders in the grocery wholesaler who have watched on this year as the price of their shares has slumped by over 40%.

What perhaps hasn’t been so well appreciated is the risk a company such as Aldi could have on the profitability of supermarket giants Woolworths Limited (ASX: WOW) and Coles, owned by Wesfarmers Ltd (ASX: WES).

This potential has been highlighted in a recent article published in the Fairfax Press titled, ‘Lifting the lid on Aldi’. Having only entered the Australian market in 2001, Aldi, has expanded to over 240 stores and five distribution centres across NSW, Victoria and Queensland. What’s more the group is set to expand into the WA and SA markets shortly and can now boast that over 50% of Australians have visited one of its stores in the past year (according to data supplied by Nelisen).

Wipe Out?

It’s hard to imagine, but according to well-known entrepreneur Dick Smith – a businessman with significant experience in dealing with the supermarket industry –  he thinks Aldi will wipe out Woolies and Coles within 15 years.

While suggestions that the end of Woolworths and Coles are nigh might be a little far-fetched, the breaking-up of this duopoly by smart, cashed-up foreign competitors such as Aldi may be a caution worth heeding and remaining alert to.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.

 

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