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Aldi’s growth poses a threat to Woolworths and Coles, Moody says

While Aldi’s expansion has so far come at the expense of independent retailers, ratings agency Moody says it is also a long term threat to Woolworths and Coles.

Moody says Aldi's growing presence could lead to lower profit margins as the major chains try to defend market share, The Sydney Morning Herald reports.

Aldi's increasing acceptance by Australian consumers and its "aggressive" growth plans would ultimately challenge the duopoly structure in the $88 billion grocery market, Moody's said in a report overnight.

"In such an environment and based on international experience with the growth of discounters, we expect the market shares and margins of Woolworths and Coles to come under pressure over time," said Moody's vice president and senior analyst, Ian Chitterer.

Pointing to the impact of Aldi and fellow discounter Lidl in the UK, Chitterer said margins at Woolworths and Coles were likely to rebase as they cut prices and invested in stores to protect their dominant market share.

In February, Aldi Australia was named Supermarket of the Year 2014 at the Roy Morgan Research Customer Satisfaction Awards Night, for the third time since 2011.

Aldi opened its first store in Australia in 2001 and, according to research firm Nielsen, now has 8 per cent of the total grocery market and 11 per cent of the east coast market. It plans to open more than 100 stores in South Australia and Western Australia over the next few years.

In January, Aldi Australia said it will not budge on its business model and vowed to maintain pricing pressure on rivals.

The discounter increased sales by 13 per cent in 2014, outpacing food and liquor sales growth at Coles and Woolworths almost three-fold.

Aldi Australia's sales reached $6 billion in the 12 months ending December 2014, compared with $5.3 billion in 2013. The growth was underpinned by strong same-store sales growth and 25 new stores.

In comparison, Woolworths' Australian food and liquor sales grew 4.7 per cent to $41.7 billion in fiscal 2014 and Coles' food and liquor sales rose 4.6 per cent to $29.2 billion.

 

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