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Australia's supermarket wars have claimed a big victim with Grant O'Brien, the chief executive of Woolworths, stepping down as an influx of foreign competitors disrupt the country's grocery sector.
Australia's largest supermarket chain on Wednesday issued its second profit warning this year and said it would slash 1,200 jobs, sell properties and install a new leader to lift sales amid intensifying competition.
"The recent performance has been disappointing and below expectations," said Mr O'Brien in a statement issued by Woolworths. "I believe it is in the best interests of the company for new leadership to see these plans to fruition."
Woolworths' woes are emblematic of the difficulties facing established grocery retailers in the UK, US and elsewhere from the rise in foreign discount operators such as Aldi and Lidl. They are mirrored at Australia's third-biggest grocer Metcash, which this week reported an after-tax loss of $384.2 million for 2015.
Analysts say the aggressive expansion of German discount chain Aldi is pressuring domestic grocers' revenue growth and profit margins. US discounter Costco has also begun building a presence while no-frills German supermarket chain Lidl may yet follow suit.
Sluggish economic growth and fragile consumer confidence compound woes in the supermarket and grocery industry, worth A$95 billion in revenues according to Ibisworld, a market research company.
"Australia's grocery sector has traditionally been dominated by Woolworths [and] Coles," said Gareth James, an analyst at Morningstar. "But Aldi has brought a low-cost model to Australia that is winning share and challenging their control."
Aldi opened in Australia in 2001 and has grown rapidly, now employing 8,500 staff across 372 stores. It plans to open 25 outlets a year on the eastern seaboard and recently said it would expand for the first time to the states of Western Australia and South Australia, opening a further 120 stores.
The German discounter has 7 per cent market share, compared with Woolworths' 40 per cent, Coles' 30 per cent and Metcash's 9 per cent, according to Ibisworld.
Gary Mortimer, at University of Queensland business school, says Coles and Woolworths will continue to lose market share but that independent grocers such as Metcash will probably take the biggest toll.
"Australian shoppers are well conditioned to private label and discount products," he says.
As they grapple with the competition, Woolworths and Coles have expanded their own private-label product lines, pressured suppliers and slashed prices. But Ibisworld says there is little room for suppliers to cut prices further, meaning lower profit margins for the supermarket chains.
Coles, owned by retailing-to-coal-mining conglomerate Wesfarmers, has performed much better than Woolworths following a turnround strategy implemented in 2007 and led by former chief executive Ian McCleod, who quit the business earlier this year.
Australia's grocery sector — like many other sectors in the economy — has traditionally been oligopolistic given the country's relatively small population, remote global location and the long distances between big cities.
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But multinational companies are increasingly moving in, lured by Australia's relatively strong economy over the past decade compared with Europe and the US. Last year H&M followed Zara, Hollister, Miss Selfridge and Victoria's Secret in opening shops in Australia.
All eyes are now on whether Lidl is prepared to invest in Australia. Earlier this month the company told retail analysts it had "no current plans" to open up Down Under, in spite of recently trademarking its name in country.
Some analysts reckon it is only a matter of time until Lidl invests while others remain skeptical.
"I'm not sure if the Australian market will support two very similar discount retailer models as Aldi and Lidl," said Mr James.