I did say I'm a lurker but couldn't help but respond to your...

I did say I'm a lurker but couldn't help but respond to your post when I saw your post CP ;-)

I don't know the person who wrote the article (typically pay attention to content rather than author - very poor habit) but I have to agree with most of the content though.


re: Tomato sauce - to add to Roger's comments though, my observation is -
1) fill the category with their own product if they have something, gauge market response and refine it (e.g. recipe) until they have something that sells well.
2) if they don't, they fill it with the most popular branded product until they can find a generically branded product, then refer to point #1 above.

What's more is that ALDI makes their own branded products look like a classy "non-generic" product, whereas Coles / WOW have standard "generic" looking products. e.g. Select. IMHO, given the amount of money they're asking goods producers to chip in for shelf space, they have to do this. ALDI does not have this pressure on their back.

A good example is Yakult. If anyone buys Yakult (fermented drink), have you realised why they keep on shifting the placement of the product over the past couple of years relative to WOW / Coles' own branded products? They simply have not found the right recipe that will allow them to take enough market share from Yakult so all they can do is change their marketing strategy to see whether they can sell more. WOW or Coles know if they get rid of Yakult before they find a winning recipe, those customers who buy Yakult will simply go to their competitor for the product (along with the rest of the groceries). We stopped buying Yakult for a while but last time I checked they're still flying off the shelf relative to the generic products.

Essentially by targeting 80% of the categories with not great - but at least satisfactory or better products, with extremely high operational efficiency, ALDI's able compete with WOW / Coles and siphon off their revenue. Every single product sold is a double whammy on WOW's revenue, and WOW / Coles rely on these 80% categories to stay afloat plus being able to stock the remaining 20% of less popular categories. Now I have not mentioned about the "choices" available in each of the categories.


Don't get me wrong - I love shopping in WOW / Coles for their choices and rarely shop at ALDI, but only talking about this from an investment perspective.

Coles has gone through the pain and adapted to better compete with WOW by doing what WOW does except for doing it better. However, ALDI is on a different playing field altogether and both Coles and WOW will have compete with ALDI on their home ground.

They need to stop talking about "investing" in lower prices. It's easier to just say they are going to lower the margins in order to compete. Those "investments" aren't coming back any time soon if they ever will.

So the discussion here has been about ALDI but no one has mentioned about the other threat which is Costco. Costco takes an entirely different strategy but to the extreme on the other end of the spectrum when comparing to ALDI. They sell branded products, but in bulk - which is another way to improve in efficiency. The kids wanted Sharpie pens, for the same price you can buy twice or three times the number of Sharpies comparing to WOW / Coles. Every trolley of goods sold at Costco is taking away 2 or 3 trolleys of the same categories from the competition. I don't know about Melbourne but every time I've been to the North Lakes store in Brisbane and Casula store in NSW, they have massive long lines of trolleys at each of their 2 dozens of checkouts.

Last but not least, all of this competition is reducing their halo effects. As a business expands, the halo effect is what drives the growth momentum. Like-wise as the business shrinks - it speeds things up.

The new management may have their eyes set in the right areas. They need to fix thing swiftly while they still have the balance sheet to support it. However, by taking it private will likely give it the breathing space it needs to reposition itself and better compete - either as a whole, or as individual components after a break up.

I'm not talking down the business (rather than saying stock) because I hate it / dislike it, I just think it is time for them to wake up to commercial reality. At the <$21 level I was actually quite tempted to buy seeing what the new management team is up to. But unfortunately I may have missed the boat as it'as already gone up by ~10% and there's uncertainty due to KKR's purchase.

As CP say - DYOR and good luck with investing!