Dick Smith has announced that he is closing Dick Smith Foods due to increased competition from German-based discount supermarket Aldi.
While the food business is still profitable, Smith believes it will become unprofitable within two years and doesn’t want to be driven out of business, and has made the decision to wind down over the next 12 months; during which time Smith will attempt to ensure his suppliers have the best chance for success moving forward.
“It’s one of the most difficult decisions I’ve ever made, and it’s one of the saddest days in my life,” Smith told Inside Retail.
“[Dick Smith Foods] was set up to help Australian farmers and food processors, [with] more and more closing down… it’s very sad, because I think it’s very important to help our farmers and in this particular case I’ve failed.”
Dick Smiths Food’s popular brands, such as OzEmite and OzEnuts, will live on through the company’s suppliers who have been given permission to take over the brands, though Smith is concerned they will be forced to use overseas ingredients in order to compete with discount supermarkets such as Aldi, Cosco and the incoming Kaufland. Ultimately, Smith hopes that the amount of Australian workers impacted by his decision is low, though worries about the state of the supermarket industry moving forward.
“Most of the farmers can hopefully get more into cattle, sheep and broad acre farming. Directly, I hope it won’t effect that many people. Indirectly, Aldi coming here is going to affect tens of thousands of Australians, because their method of business is ‘not sharing the wealth’,” Smith said.
“They do this by having less and less staff, and Coles and Woolworths will have to match that. They’ll have to put off a tremendous amount of staff so they can get their overheads down to compete with Aldi.”
In anticipation of this announcement, Smith released an open letter yesterday afternoon to the owners of Aldi, Karl Albrecht Jr. and Beate Heister, where he personally invited the company leaders to come to Australia and explain their long term plans to the Australian public and politicians.
“Are there plans for endless expansion and endlessly selling lower and lower priced goods?” Smith asked in the letter.
“Will these goods, just like your peanut butter, come from countries like Argentina where wages are extremely low? Won’t this mean our Australian farmers and food processors will never be able to compete with such low prices? We have 14 per cent youth unemployment and over 20 per cent youth underemployment – that is, where young people can’t get a proper full time career. Your formula of employing less staff per dollar turnover compared to the typical Australian owned supermarkets will ultimately mean less Australians employed.”
In a letter sent directly to John Durkan, managing director of Coles, Brad Banducci – managing director and CEO of Woolworths and Jeff Adams, CEO of Metcash, Smith noted that Aldi isn’t the only disrupting company in the Australian market.
“It will be Costco and Amazon as well,” he wrote. “They have ascertained that while all modern democracies have a minimum wage, there is no law in relation to minimum staffing levels. They use this loophole to employee less staff, so the wealth is directed to the owners of the business rather than shared in a fair way with employees. There are reports that Aldi stores have less than 25 per cent of the staff of one of [your] stores of similar turnover.”
Smith noted that the Aldi concept is ruthlessly astute and, in his eyes, the writing is on the wall.
“It is clear that unless [your] companies move towards this system, you will very likely become uncompetitive.”