Aldi has cultivated a cult-like following in Australia, with its adherents becoming even more zealous during the cost-of-living crisis.
This is understandable, given the German-owned retailer is the country’s primary “hard discounter”, providing cheaper groceries than the dominant supermarket chains, Coles and Woolworths.
But the results of the competition regulator’s 12-month inquiry into the sector might temper some of the goodwill many shoppers feel towards the store with a famed middle aisle.
The Australian Competition and Consumer Commission (ACCC) found in its report that Aldi’s Australian operations – along with dominant retailers Coles and Woolworths – are more profitable than most of their international peers.
According to its study of 12 supermarkets around the world, only two – Canada’s Loblaw and American giant Walmart – generated profit margins of around the same levels, which suggests Australian shoppers are paying more than necessary for their groceries.
There has been a lot of heated discussion about which metric best measures profitability, so the ACCC used three of them.
“No single profitability measure is definitively the most relevant for comparing supermarket profitability internationally,” the report said.
“However, considering their profitability across all three measures compared to peers in other countries, Aldi, Coles and Woolworths appear to be among the most profitable supermarket businesses globally.”
The findings are in keeping with analysis conducted by Guardian Australia focusing on Coles and Woolworths, which are both publicly listed companies that must publish detailed financial accounts.
But the ACCC was also able to use its information-gathering powers to assess the profit margins of the privately owned Aldi.
The regulator found that the three chains had expanded profit margins since the pandemic, to the detriment of shoppers.
“Stable or increasing [profit] margins over this period suggest that – even if Aldi, Coles and Woolworths have acted to moderate cost growth – they have not passed on to consumers the full benefit of savings from those initiatives,” the ACCC report said.
That finding may not sit well with the more than 100,000 Facebook members of Aldi Fans Australia. That membership figure is up 25% in less than a year as more customers seek out alternatives to the major chains to save money.
Aldi was contacted for comment.
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None of this suggests that Australia would be better off without the German retailer.
Consumer group Choice has consistently found that a basket of common groceries from Aldi costs about 25% less than an equivalent purchase at Coles or Woolworths.
The inquiry heard that Coles and Woolworths are forced to drop prices when an Aldi opens nearby; and markets without the German retailer, including Tasmania, Northern Territory and New Zealand, are worse off.
It’s more a case that Aldi came into Australia in 2001 as a major disrupter, before going on to carve out a highly profitable and comfortable niche generating $12bn a year in revenue.
In other words, it can undercut the major retailers through its no-frills strategy and products, where customers pack their own bags and purchase big brand lookalikes, but it doesn’t need to compete so ferociously as to erode its own profitability.
Part of the reason for this is that while it has a 9% share of grocery sales in Australia, compared with the 67% combined control of Coles and Woolworths, it has near total control of the discount grocery segment.
As the ACCC notes: “Aldi does not face direct competition from any other hard discounters.”
It had such a rival when it entered the Australian market, with Franklins offering discount groceries. But Franklins faulted and was eventually sold for parts.
Gloomily, the regulator concedes there is no “silver bullet” to address the lack of competition in Australia, although it has provided 20 recommendations designed to help consumers and suppliers operate in a tightly controlled supermarket sector.
