#134 Kaufland enters Aussieland
Late in 2017, German chain Kaufland, part of the German-based Schwartz Group that also owns retailer Lidl, entered the Australian AUS$ 90 billion market for groceries. It brought its brand of huge, warehouse style stores that usually have 15,000 to 20,000 square meters and a range of up to 60,000 different products to Aidelaide first and then to Melbourne. At this point, it remains to be seen if the Schwartz Group, which is the fourth largest retail group globally, can pull this off. In an industry where margins are very thin and competition is intense, getting to scale quickly matters most. Challenges will lie ahead as Kaufland’s model differs significantly from established Australian retail chains such as Coles or Woolworths. Their stores are generally less than a fifth of Kaufland’s size, and as other retailers such as Wal-Mart or Carrefour have experienced, entering distant markets with a standardized business model is a complex matter.
March 14, 2018 @ 11:17 pm
I am really curious to see how Kaufland will be performing ‘Down Under’. So far Kaufland has launched outside Germany only in Eastern European countries. Australia will be its first english-speaking market. As this blog rightly points out the entry challenges for Kaufland ahead will be that entering distant markets with a standardized business model is a complex matter. It’s ability to gain share in a developed and consolidated retail market is not proven yet. Selecting a target market should be done carefully. There are a number of examples who failed in this context. A famous example is Walmart’s misadventure in Germany and Korea, where several market conditions and consumer behaviors have not been considered in advance. Walmart for example struggled through different language, which could be an issue for Kaufland as well. Other company related factors have been labor law, challenges in setting up a distribution network and a low market penetration through opening a small amount of stores. Consumer related factors have been the shopping experience of Walmart to which Germans were absolutely not used to and their price sensitivity. Furthermore they saw no need for a one-stop shop. Also differences in real-estate market prices in Germany lead to higher investments for Walmart than originally planned. Kaufland usually runs large grocery stores up to 20,000 square meters, which could make finding premium locations in major cities difficult. All this information should be gathered before a possible market entry. In the end differences between external conditions, which makes Kaufland successfully operating in its home market and their target market should be examined. A feasibility study will show how attractive the Australian potential really is and if this market could be the entry to other synergistic markets.
March 18, 2019 @ 4:53 am
With the new German entrant Kaufland, the Australian market for grocery, dairy, electronics and other consumer discretionary products will be probably shaken up. Now the market is led by giant supermarket players like Coles, Woolworths and Amazon Australia. With several new innovations through special offers and campaigns they already offer superior quality goods to Aussies and that at attractive prices.
Although Kaufland has now secured to be in Australia with approved headquarter and already three approved sites and started an intensive recruitment effort it will be still a challenge to be successful on that market.
With all the expansion in other countries like South Eastern Europe, Kaufland itself is ready from an cooperation point of view – to stress the recruitment efforts – the investment recruit people and management from Australia for 14months to Europe to be trained for the procedures, processes and philosophy is a very good start, but can be seen also as a kind of “brain-wash” and has the risk to lose the “feeling” for the home-market”.
On the other hand Kaufland drives a “Mega store concept” and it seems they want to continue that in Australia, too – at least at the beginning. This concept is very successful in Germany and time will show if the story can be continued – although there are already some obstacles and delays i.e. Prospect Council, north of Adelaide, which claim the German discount supermarket is too big and poorly designed.
Not sure if that was already in the expansion plan of Kaufland, but it seems they realized or probably were aware of such adaption pressure, as they presented now additional plans to acquire Australian retailers to get away from the mega-concept into a “village-like atmosphere”. So we will see in the upcoming months how the strategy is working out!
April 10, 2022 @ 7:07 pm
Kaufland’s attempt to enter the Australian market has now joined the list of failures on a par with Walmart’s entry into Germany, discussed in other comments. In 2020, Kaufland officially announced that despite the $500 million investment already committed, the project was winding down. While it was not an easy choice after so much had already been invested in the project, the loss may have ended up saving the business billions in the future. Several reasons contributed to the decision.
The market entry attractiveness calculations were done in 2015/16. There were no stores open as of 2020, and consumer behavior had changed drastically in 5 years. The industry was prone to digital disruption and there was a major increase in online shopping. Thus, the return on investment in the new environment would take roughly 7-8 years. As the population density in Australian cities grows, smaller stores are easier to open (Coles Local) and they also attract more shoppers. Being able to find space for a 4000-20000 m2 store has been a challenge in a very limited real estate market. The logistics in Australia are completely different from those in Europe. The distance between cities can be hundreds of miles, which leads to the need for more distribution centers and more stores to cover logistics costs. On top of that, Kaufland’s results in the key European market began to fall, and instead of investing heavily in entering new markets, there was a need to focus on the core businesses in Europe.