Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) shareholders may want to check their rearview mirror as Aldi tailgates the supermarket giants. Here are some reasons why.
Over the past two years, both Coles and Woolworths have experienced an upward trend in their share price. However, I think things may change over the long-term.
COL share price
WOW share price
Aldi focuses on e-commerce and smaller stores
Aldi announced plans to open smaller stores in urban locations and launch an online store this year. Wait, smaller stores?! This might seem bizarre to those who want more range but there’s more to this than meets the eye.
Aldi CEO, Tom Daunt told the Australian Financial Review, “We’re already the beneficiary of having a relatively small store format“. Tom Daunt noted small stores in densely populated areas outperformed larger stores during the pandemic.
As a result, Aldi is looking to capitalise on this trend by opening stores that are smaller than Aldi’s existing format, tailored to local customers.
Just to give you an idea of how small Aldi stores are, they carry about 1,500 stock keeping units, which is a stark contrast to 25,000 in a traditional full-service grocery shop.
The smaller footprint will complement Aldi’s long-term focus on building a cost-effective e-commerce service. I will tell you why later, let’s zoom into Coles and Woolworths for a moment.
Coles and Woolworths continue to grab market share
As highlighted in my previous article, Coles and Woolworths not only continue to capture more of the market share but their online sales really ramped up as a result of COVID.
Coles and Woolworths have invested in distribution centres to speed up and grow their online channels. They also plan to open more stores to try and win more market share.
As Aldi focuses on opening smaller stores, it will likely continue to be much smaller than Coles and Woolworths.
More nimble may mean more value for customers
The key challenge for supermarkets in providing online services is that it’s expensive for customers. Costs of providing online services ramp up as more team members are required at both the physical store and distribution centre.
This is where I think Aldi will have a leg up on its bigger rivals. Given Aldi will be rolling out smaller stores, it will be more flexible in providing a cost-effective online service.
And more importantly, I think this strategy will enable Aldi to be in a better position to pass on cost savings to its customers. This is reinforced by Tom Daunt’s comment about not being particularly focused on market share or the number of stores but rather ensuring Aldi can always deliver the best value in the market.
Aldi’s strategy and focus on providing the best value to customers reminds me of a notorious successful supermarket company in the US, Walmart Inc (NYSE: WMT).
Whilst Coles and Woolworths keep growing, I think shareholders may benefit from monitoring Aldi’s e-commerce strategy. Digital shopping appears to be the way of the future after all.
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