The retailer Kaufland has announced they are setting up stores in the Australian market. Please help me understand the retailer Kaufland and their likely success in Australia by providing a company analysis of their model, performance and competi...

Part
01
of one
Part
01

The retailer Kaufland has announced they are setting up stores in the Australian market. Please help me understand the retailer Kaufland and their likely success in Australia by providing a company analysis of their model, performance and competitors.

Hello, and thank you for your request for a company analysis of Kaufland's model, performance, and competitors, specifically with respect to their recent announcement of expansion into the Australian market. The short version is that Kaufland is a Germany-based hypermarket, currently operating as a "one-shop discount shop" in seven Eastern European countries, boasting revenues of €21.1 billion in 2016. In comparing Kaufland with the competitors you identified, Lidl and Aldi, our findings revealed that Kaufland and Lidl are "sister companies" operated by the German conglomerate, Schwarz Group. For this brief, we compared Kaufland to Aldi, as Kaufland and Lidl are not direct competitors by virtue of being operated by the same parent company. Factors potentially affecting Kaufland's expansion into Australia, compared with Aldi's existing operations, indicated three issues should be considered: Aldi's proven business model in Australia, the likelihood of Kaufland securing lower operating costs in suburban locations, and the possibility of Kaufland disrupting the existing grocery market with enhanced product offerings and larger retail spaces. Below you will find a deep dive of our findings.

METHODOLOGY

In order to provide a company analysis of Kaufland, my colleagues and I first reviewed Kaufland's corporate website to determine the history of the company, its mission and values, and other critical information pertinent to evaluating its overall business model and strategy. Next, we identified countries into which Kaufland has expanded, and we conducted a press search to identify any recent announcements of Kaufland's intention to expand into additional markets. We then attempted to determine if store models are identical in each market. While we were able to identify certain key characteristics of all Kaufland store models, we could not definitively conclude that all Kaufland stores are structured identically. We then gathered information specific to Kaufland's expansion into Australia.

While conducting research on other global supermarket operators, specifically Lidl and Aldi, per your request, our findings revealed that Lidl is the "sister company" of Kaufland and operates with an entirely different business model. On the other hand, Aldi is considered a competitor of Kaufland, but there are still significant differences in business models and strategies. In this brief, we have provided a comparison of each company's products, prices, logistics, geographical locations, market entry factors, and projected success, particularly in Australia. My colleagues and I reviewed corporate websites, industry reports and databases, and trusted media sites to obtain information for this brief, which is detailed below.

KAUFLAND CORPORATE HISTORY

Media reports traditionally track the opening of the first Kaufland store to Neckarsulm, Germany in 1984. However, Kaufland's corporate history is substantially older and more complex. In 1934, the prominent German fruit seller, Josef Schwarz, expanded his business into wholesale retail, and he merged his company with A. Lidl's business, initiating the formation of Lidl & Schwarz KG. This company, which specialized in tropical fruits, colonial goods, and general merchandise, was substantially impacted by World War II, but it had recovered enough by 1960 to launch its first wholesale store, Handels & Fruchthof GmbH.

In 1984, the company's first "hypermarket," Kaufland, was established in Neckarsulm, Germany. With the fall of the Berlin Wall, expansion of Kaufland stores in Eastern Germany increased in the 1990s, and in 1998, Kaufland expanded to the Czech Republic. By 2006, Kaufland was operating hypermarkets in five additional countries: Poland, Slovakia, Romania, Bulgaria, and Croatia.

The Schwarz Group continues to operate Kaufland as well as Kaufland's "sister company," Lidl, which is classified as a "discount supermarket." By 2011, Kaufland had opened over 1,000 stores internationally. Currently, the Schwarz Group also operates approximately 9,000 Lidl stores globally, and Lidl and Kaufland remain firmly linked to the present date.

Kaufland's business model and strategy

Classified as a hypermarket and billing itself as a "massive one-stop discount shop," Kaufland stocks approximately 60,000 stock keeping units (SKUs) and boasts its own organic grocery line, K-Bio, as well as its official store brand, K-Classic. There are over 1,230 stores in Europe, with over 130,000 employees. In 2016, Kaufland stores averaged €20.14 million in sales per store. Kaufland's product offerings draw comparisons to Costco (minus the required membership) and Kmart, as Kaufland sells "everything from ladders to kettles, modems to smartphones."

STORE MODELS

Unlike its sister company, Lidl, Kaufland is a discount retailer of name-brand apparel and household goods, albeit with a substantial and increasing emphasis on fresh food items. It is estimated that 80% of Kaufland's product offerings are groceries, with the remaining 20% of items devoted to apparel and general merchandise. Kaufland's marketing strategy relies heavily on its digital presence, devoting substantial resources to holiday advertising. Kaufland's stores, regardless of location, are consistently enormous, in many cases boasting 20,000 square meters of space.

Although we could not definitively determine if store models are the same in each market, we did identify some characteristics of Kaufland stores that are consistent between markets. First, Kaufland utilizes an "everyday low pricing" scheme for its products. Second, Kaufland is working to extend its private label range with premium product lines. Third, and as will be discussed in greater detail below, Kaufland is devoting significant resources to revamping and modernizing existing stores. Finally, and linked with the third point, there is an overall trend towards improving digital and ecommerce capabilities, which were initiated in Germany and are planned for expansion throughout all its European stores.

MARKET ENTRY STRATEGIES

Kaufland is isolated to Eastern Europe, where it has a tremendous presence in Germany, the Czech Republic, Bulgaria, Poland, Slovakia, and Croatia. In 2016, 640 of Kaufland's total stores were located in Germany, with 508 stores scattered throughout the remaining Eastern European countries. Germany appears to be Kaufland's primary focus, and the company is devoting significant resources to upgrading and modernizing existing stores. To date, Kaufland has not actually opened a store in any English-speaking country in the world.

Overall, Kaufland has been extremely conservative in its geographical expansion outside Eastern Europe, but not in its overall strategy for pursuing new projects. Kaufland's sister store, Lidl, is operating in 28 countries worldwide, and Aldi has offerings in 19 countries globally. Therefore, it appears that Kaufland will be the late entry to virtually all geographical markets moving forward. In its discussion of a possible Australian expansion, Kaufland indicates that, "We are a growth-oriented corporation continually assessing our expansion possibilities in existing and potential markets." However, while its geographical expansion has been limited to Eastern Europe, Kaufland is not risk-averse in pursuing new projects. The company often purchases abandoned and/or derelict buildings for development, and Kaufland also accepts projects that other competitors have rejected.

AUSTRALIAN MARKET FACTORS

BACKGROUND

Although Kaufland has established a Kaufland Australia corporate website, where prospective employees can apply for positions, there are no available employment positions currently advertised. Kaufland has also announced that corporate headquarters in Australia are planned for Melbourne. The corporate website indicates, "We are currently conducting a feasibility study by analyzing the Australian market." Kaufland has specified that only after the completion of pending feasibility studies will the company be able to determine the likelihood of success in this market, and subsequently initiate property development. If development progresses, the company is interested in plots of land that are at least 10,000 square meters in size, but preferably between 15,000 and 20,000 square meters.

COMPETITOR COMPARISONS

By 2015, the Schwarz Group (including Kaufland and Lidl) and Aldi were the largest discount grocery retailers in Europe, and the third and seventh largest globally, respectively. The Schwarz Group is eclipsed only by Walmart in the global grocery market. In 2016, the Schwarz Group boasted revenues of €85.7 billion. Kaufland's profit during this time frame was €21.1 billion, while Lidl's revenue was €64.4 billion. Unfortunately, Aldi is a privately held company and does not publicly publish annual reports of global revenue data. The most reliable estimates of Aldi's annual revenue are available for retail stores in the United States, and since Kaufland operates no American stores, these comparisons did not appear useful for purposes of this brief. Aside from performance strictly in terms of revenue, there are two critical differences between the business models and strategies of Kaufland and Aldi, which may affect Kaufland's potential success in the Australian market.

First, while Kaufland has traditionally been isolated to seven Eastern European countries (with the pending possibility of expansion to Australia), Aldi operates in 19 countries globally, with a strong presence in English-speaking countries, including the United States, England, and Ireland. It is worth noting that while Kaufland remains in the pre-operational phase of Australian development, Aldi already operates approximately 450 stores in Australia, and is investing over $700 million to expand and upgrade its Australian presence. At this stage in the process, Kaufland is only a proposed competitor with no experience outside Europe, competing with a well-established brand in Australia. On the other hand, there is very little competition in the Australian grocery market, with two retailers dominating 70% of the market. By offering both scalability and a greater range of products, Kaufland may be poised for success in Australia.

Second, Kaufland is not strictly comparable to Aldi, and in fact, Aldi is more often compared to Kaufland's sister company, Lidl. There are two main differences in Kaufland and Aldi's retail stores and strategies. Aldi "keeps prices low by limiting inventory to a lean selection of private-label items," offering approximately 1,300 items. Kaufland's business model offers a robust inventory of up to 60,000 products. Additionally, in terms of actual retail space, Aldi and Kaufland are likely to attract different types of shoppers for very different reasons. Aldi stores are typically much smaller than 20,000 square feet, which is the preferred size of Kaufland's first planned Australian store. In Australia, this could make Kaufland a "destination retailer," where shoppers make isolated trips to large, suburban destinations for purchases. In comparison, Aldi is successfully operating stores in both urban and suburban settings at this time in Australia. On the other hand, this issue may be to Kaufland's benefit; it is noted that suburban locations are often more cost-effective to purchase and operate.

Implications for further research

As our findings indicated that Kaufland and Lidl are sister companies, they cannot be classified as competitors, especially in light of their different business models. Our research also revealed that comparisons between Aldi and Lidl are more common, as both companies have expanded into the global grocery market outside Eastern Europe, offer comparable product lines, and operate with similar business models. While we have attempted a comparison between Kaufland and Aldi for this brief, we have noted the significant differences in operations, which may make comparison between the two companies unproductive.

As an additional avenue of research, you may find a comparison of Lidl and Aldi to be more useful. Alternately, if you have identified another direct competitor for Kaufland in Australia, we could research competitive advantages for that company and provide an updated brief.

CONCLUSION

In summary, as Kaufland and Lidl are sister companies, our comparison of Kaufland and Aldi for this brief revealed that while Kaufland has a dominant presence in seven Eastern European markets, Aldi has a proven record of success in English-speaking markets, specifically Australia. However, Kaufland offers more extensive product lines and larger retail spaces, potentially making Kaufland a viable threat to the existing grocery retail market in Australia.

Thank you for your request, and if you would like any additional information on this or another topic, please do not hesitate to ask Wonder!
Sources
Sources