The Australian Grocery Channel in Review, 2012

As 2012 comes to a close, we take time to review the grocery landscape in Australia, how it has evolved, and the notable trends we’ve observed throughout the year.

While smaller retail groups such as Aldi, IGA, and Costco have begun making inroads in the Australian market, the powerful duopoly that is Coles and Woolworths has continued to dominate.

Quality (freshness), value, and price strategies have been a focus for all retailers in an attempt to own their respective positions within the market. Generous loyalty programs, aggressive expansion and diversification tactics, and the drive to create a one-stop-shopping environment for shoppers have been a core focus for the two largest grocery chains.The competition between retailers has been publicly played out to shoppers through aggressive PR and media activity with the goal to increase foot traffic, while creating retailer differentiation in a market with little distinction between the two key players.

For example, Woolworths, repositioned as “Australia’s Fresh Food People,” went to market with both “Everyday Low Prices” and “For Less for Families” discount strategies, targeting the family shopper and substantiating the brand promise that they are both in support of Australian families and quality Australian produce.

Similarly, the “There’s no freshness like Coles freshness” campaign delivers a strong quality and freshness message. According to research by Ipsos, the campaign TVC was recognized by 80% of consumers with 91% of them associating it with Coles – a result which is “the highest score achieved of any commercial since the…awards commenced at the start of 2011.”

Coles value propositions “Super Specials” and “Down Down” have also resonated well with shoppers, although the campaign’s jingle has polarized marketers.

The challenger brand IGA also went to market with an aggressive promotional pricing push, coined the “Locked Down Low Prices” strategy. While the brand maintains its local independent message, this platform allows it to compete with larger discount propositions laid out by the duopoly.

Aldi continued to drive traffic through its “special buys” program and discount price strategy. Predominantly communicated through product-led campaigns, Aldi’s creative aims to relate to genuine shopper insights and inject a sense of humor, while still focusing on its grocery and merchandise range (typically clothing, housewares, and toys).

Finally, Costco’s membership warehouse club model ensured that shoppers receive the best possible prices through bulk buying, discount, and value solutions. Value drivers were communicated through Costco’s worldwide strategy – promoting its business through WOM, BTL, and PR campaigns.

So while each retailer had a different skew on messaging, the frontline themes of quality, value, and price were featured, allowing each to connect with their target shopper.

Retailer loyalty programs have also been a focus of the big two, as they battle it out for shopper spending and traffic in 2012. Offering generous discounts, points programs, and shopper incentives, they each bid to encourage shopper devotion.

An example of the enticements on offer can be seen with family-focused programs such as Woolworths “Earn & Learn” and Coles “Sports for Schools.” The programs target the family shopper, directly linking retailer allegiance to the benefit of their local schools.

Both of the supermarket giants also re-launched flagship loyalty programs in 2012.

Woolworths Everyday Rewards previous link to Qantas frequent flyer points, saw the addition of benefits such as fuel, mobile, and credit card discounts, as well as the development of the “Extra Special Savings” platform linked directly to shopper spend data on the card.

Coles also re-launched the existing FlyBuys loyalty program in an attempt to drive continued shopper engagement and trust. However, the brief addition of the overly complicated My5 loyalty program (giving shoppers 10 percent off five products of their choice, set up online through an existing loyalty card) proved a costly mistake for Coles, which removed the program from the market only six months after launch.

Business expansion and diversification tactics were key in the activity of all grocery retailers throughout 2012, with the quest to create a larger point of difference in the market and cover all shopper touch points at the fore.

In the past year, Woolworths opened a record number of supermarkets across Australia and now has a staggering floor space of 2.3 million square meters. Woolworths has continued to expand its influence and reach by diversifying current offerings from branded grocery and petrol outlets to include banking, insurance (home, car, and pet), and mobile services, in addition to the huge private label presence on shelf – providing a one-stop-shop for shoppers.

In much the same way, Coles has continued its expansion and diversification with an equally impressive1.6 million square meters of floor space– featuring a huge private label range and cross-category offerings including Coles branded home insurance, mobile phones, music, car insurance, and credit cards.

Expansion has been the focus for smaller players throughout Australia. Aldi’s “no-frills” outlets now have 288 stores nationally.Costco, the newest addition to the landscape, has three warehouse-style stores in key capital cities, with plans to open 17 stores in 2013.And, finally, IGA, following acquisition of Franklins, now has Australia’s largest network of 1,400 independent supermarkets.

In their endeavor to drive footfall and loyalty, both Coles and Woolworths have broadened their offerings to position themselves as one-stop-shops.In store bakeries, butchers, fishmongers, and florists give shoppers the one stop solution to all their shopping needs.The shift supports value, convenience, and experience motivations, which will ultimately make competition with the duopoly even tougher.

The takeaway? The landscape is changing to fewer, bigger, and better. While the benefits of convenience, quality, lower prices, and points schemes are clear, the domination of the duopoly gives them control to drive prices up and down to the detriment of the shoppers’ hip pockets.

As a result, shoppers are left frustrated by a lack of real choice between retailer offerings. The consequence of which is high levels of fickle shoppers, which, ultimately, cannibalizes their ability to create shopper loyalty.

Contributed by Erin Kelly, Integer Australia

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