Aldi aims to grow market share

Credit: Mike Mozart

Discount supermarket Aldi plans to spend more than $1 billion over the next three years increasing its fresh food range and refurbishing and expanding existing stores.

Taking aim at market leaders Coles – owned by Wesfarmers Ltd (ASX: WES) – and Woolworths Limited (ASX: WOW), Aldi is increasing its range of fresh fruit and vegetables, meat, bakery, dairy and chilled products as well as health foods.

But don’t expect the retailer to become a clone of its larger counterparts. Aldi will still only have around 1,500 products – well short of the ~25,000 products stocked by Coles and Woolies.

The discount retailer is expected to spend around $700 million rolling out more than 120 stores into South Australia and Western Australia. The company’s 400 east coast stores are being revitalised and expanded to around 1,000 square metres, and fresh food is being moved to the front of the store from the back.

Unlike Coles and Woolworths though, don’t expect to see in-store bakeries, fishmongers, delis and special cheese sections. As Aldi boss Tom Daunt has told the Australian Financial Review (AFR), “We’re not trying to become a full-line supermarket, we are trying to offer fresh in the Aldi way.

Driving the changes at Aldi are changing consumer habits. We tend to shop more frequently and buy less while increasing the spend on fresh produce. The market is also more competitive than it has even been says Mr Daunt. Woolworths is turning around its growth, while Coles continues to reinvest back into lower prices.

Aldi had sales of around $6 billion (GST inclusive) in 2014 and earnings of #238.5 million, and Mr Daunt has told the AFR that sales in 2015 had risen around 11% to $6.7 billion (including GST), and are on track to grow at a similar rate in 2016. That’s well ahead of the major supermarkets, Coles saw sales growth of 5.1% in its food and liquor divisions in the 2016 financial year, while Woolworths had sales growth of just 0.6% in the same period.

Mr Daunt says the additional spend should set the company on track to achieve around 14% or 15% share of the market – from its existing share of around 10%. Most of that is likely to come at the expense of Woolworths and Coles.

Discover the 'new breed' of blue chips that could take your portfolio higher

Forget BHP and Woolworths. These 3 "new breed" top blue chips to buy now pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers Ltd. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.