Evolution or Revolution in Fresh Produce Retailing?

Although Australian retailing is still dominated by two national supermarket chains - Coles and Woolworths - major changes continue, writes FMCA member John Baker, CEO of Produce Marketing Australia.

Recent changes in Australian retailing include the arrival of Aldi as a force, growth in the specialist fruit and vegetable retail sector, and improvements by independent supermarkets under the IGA and FoodWorks banners. Even within the two supermarket chains, there have been major moves away from the "one size fits all" approach to retailing.

Woolworths has taken a three-pronged approach to fresh produce retailing.

• First, a range of formats was trialled before settling on a "one touch" approach where effective displays are still possible.
• Second, a significant number of locations, primarily in more price-sensitive areas, have been designated "Special Buys" stores, with cheaper produce being sourced from suppliers and wholesale markets.
• Third, the "Thomas Dux" independent fresh food chain has been established to compete with the resurgent greengrocer sector. The recent acquisition of seven Macro Wholefoods supermarkets has now given Thomas Dux access to 11 sites in New South Wales and Victoria.

Coles has taken a slightly different approach to segmenting the market.

• "Market Buys", rather than "Special Buys", have been introduced to appeal to cost-conscious consumers, within the framework of a one-touch format.
• More radical has been the recent development of new fresh produce department formats, modelled on independent fruit and vegetable retailers. This format features field bins, extensive use of ice, much higher staffing levels and an extensive range of value-added cut fruits and vegetables, prepared in-house.

Coles Director of Store Formats Gavin Parker says the concept can still evolve, and each store format will be customised to local demographics.

In another move, Coles is divesting 45 of its 700-plus stores to the independent supermarket group FoodWorks. CEO Peter Noble says the stores will be company-owned and tailored to the needs of local communities.

It will provide added competition to Coles, Woolworths and Aldi supermarkets. German discount retailer Aldi has grown to more than 200 outlets in New South Wales, Queensland and Victoria since the first store was opened in Australia in January 2001. In the current economic climate, Aldi has been a significant beneficiary as consumer's trade down, looking for value through lower prices. In keeping with its stocking policy, Aldi carries only a limited range of fresh produce, but significant sales are achieved for those products. Not to be left behind is IGA, the main independent supermarket group.

In October 2007, IGA-Fresh was established to service the fresh food needs of its retailer customers. Major initiatives have included the purchase of fresh produce distribution centres, as well as investing in existing wholesalers/suppliers to IGA stores.

Taken together, the various forms of supermarket retailing are estimated to represent around 70 per cent of fresh produce retail sales.

The balance is achieved by specialist fruit and vegetable retailers, who have consolidated their market share.

Good independent retailers are competing very successfully with supermarkets for a number of reasons. Owners, managers, and staff are more knowledgeable about fresh foods, a feature appreciated by their customers. In addition, by sourcing through wholesale markets they have a greater choice of fresh produce, which they can have on their shelves more quickly than can supermarkets. Many of these specialist retailers have expanded from fresh produce to fresh foods, including deli, dairy, meat and specialty breads.

Growth in the sector is obvious in the number of multi-store outlets, such as Zone Fresh in Brisbane, Harris Farm Markets, Norton Street Grocer, and Trim's Fresh in Sydney, Colonial Fruit Supply, and Toscanos in Melbourne, and Adelaide Fresh in South Australia. Retail developments and innovation in Western Australia appear to be constrained by regulatory impediments, especially restrictive trading hours.

About to change the landscape even more is US discount big-box retailer Costco, which will open its first Australia store (covering almost 1.5 hectares!) on 17 August in Melbourne .A second store will open in Auburn in Sydney next year, and further stores are planned.

Product range will include food, home wares, electronics, jewellery, liquor and car parts and accessories. Shoppers are required to be members, at an annual fee of $60. For store size think Ikea, for choice think Aldi but with big-name brands.