The food and grocery industry is still reeling after Wednesday’s shock announcement from German discounter Kaufland that it has pulled the plug on its Australian expansion.
The retailer dropped the bombshell on Wednesday afternoon despite having invested over $500 million in the local arm, having purchased 23 sites, recruited 200 people, and all before opening a single store.
The question on everyone’s lips is ‘Why?’, and ‘Why now?’.
Frank Schumann, acting CEO of Kaufland International, said it was “not an easy decision” but was based on “focusing business activities in Europe”. However, many analysts are sceptical.
Retail expert QUT professor Gary Mortimer suspects that Kaufland may have been spooked by some of the challenges in the food and grocery sector that have emerged over the last two years, “particularly issues around access to supply”.
“Since 2017/18 Coles and Woolworths have shifted towards longer term supply contracts. And of course, we can’t discount the impact of drought and bushfire,” Mortimer told Inside FMCG.
Credit Suisse retail analyst Grant Saligari told Reuters that they didn’t believe it would be a “successful proposition” and thought “it was surprising that they were entering in Australia with the hypermarket format in the first place”
“Now, to reverse it within this time-frame, I can’t guess as to why they’ve done that. It strikes me as very unusual,” Saligari said.
FMCG and retail professionals reacted with disappointment to the news online with many suggesting that the discounter failed to do its research on the Australian retail landscape prior to investing.
“Understanding the Australian market is important – the homework here was never realised regarding, agriculture, transport, fresh produce and really understanding the customer needs,” Michael McNeil, territory manager at Cadbury, said in response to the news on LinkedIn.
Top quality staff out of work
Questions are also being asked as to why the retailer suddenly called it quits when it was still advertising positions up until last week.
A post on the company’s LinkedIn account last week called for applications for a store manager role.
“If you have a passion for retail & a flair for delivering exceptional customer service, in a fast-paced, exciting environment, we would love to hear from you!” the post read.
With 200 people now out of work as a result of Kaufland’s exit, many will struggle to find a role at the same level.
“Many highly talented staff that had left secure, long term positions to help get this off the ground. I hope Kaufland follow through on their promise of ‘generous packages’. Many of these staff will have their lives turned upside down by this decision,” James Madden, MD of Flinders & Co commented.
Suppliers, contractors and landlords have also been let down greatly by the news.
“It’s not just the job losses but potentially any supply contracts with farmers dairy producers, livestock owners and of course landlords,” Mortimer said.
The retailer had already locked in 14 sites in Victoria alone.
Future of store sites and distribution centre
Kaufland has yet to decide what will become of its 23 Australian supermarket sites and $255 million distribution centre in Victoria which was already under construction and was set to be one of the largest in Australia.
The company said the future of these investments will be discussed over the coming days.
Mortimer suspects Coles and Woolworths will be eyeing up those vacant sites “as long as they don’t cannibalise existing stores sales”.
Shaun O’Sullivan, director at m3property told Inside FMCG that the withdrawal “will be beneficial for shopping centres and supermarkets which would be directly impacted by Kaufland’s arrival in the area” but he added that it “probably creates negative sentiment toward retailing in Australia”.
Relief for Australian supermarkets
It’s likely, however, that Australia’s big two supermarkets, alongside Aldi and independents will be quietly relieved at the news.
Kaufland’s hypermarket stores were expected to cause major disruption in the $110 billion supermarket landscape.
An industry group made up of FoodWorks, IGA, Friendly Grocer and more launched a campaign last year in protest at the arrival of German giant.
Jos de Bruin, CEO Master Grocers Association, said that the retailer posed a “major risk to any family enterprise and private business”.
Coles, Woolworths and Aldi declined to comment on Kaufland’s exit.