Will Lidl be good for the Australian economy and its food producers?

Posted by AFN Advertorial on 31st March 2017

There is no doubt about it; the Australian economy has been through a tough time of late.

 This began with a sharp economic decline in September of 2016, which resulted in a contraction of 0.5%. Since then, Australia has seen exports decline by 3% across the board, with financial group City Index reporting that a significant decline in the demand for gold has been the primary trigger for this.

The global demand for Australian coal also fell, leaving the economy facing its worst crisis since the financial crash of 2008.

If Lidl Enter the Australian Marketplace, How Will This Effect the Economy?

 There has also been a hive of activity in the retail sector recently, as speculation mounts that the German, discount supermarket chain Lidl will launch into Australia at some point in the near future. This would mark the single biggest shake-up in the grocery sector since rivals Aldi entered the marketplace back in 2001, while it has been prompted a mixed response from economists, consumer groups and food producers alike. While Lidl representatives have so far remained tight-lipped on the move, it seems only a matter of time before the brand make its debut Down Under.

This would certainly increase the level of competition in the sector, leaving a total of five major supermarket players aggressively competing for a dominant market share. Lidl would also look to follow the template established by Aldi in Australia, which has more than trebled its market share (from 3.1% to 11.6%) over the course of the last 10 years and established itself as the third largest player in the sector.

This has had a pronounced effect on the economy and the average shopper Down Under, with consumer group Choice recently revealing that customers could reduce their grocery bills in half by shopping at Aldi. The same principle can be applied at Lidl, and consumers are likely to embrace the emergence of another discount chain with considerable enthusiasm. From an economic perspective, this also promises to be good news, as Lidl’s entry will create a competitive market in which consumers have more disposable income and higher purchasing power.

What About Food Producers and Private Label Product Manufacturers?

 The focus of discount chains on private label products is a concern for some, however, with Morgan Stanley arguing that Aldi had already reached ‘critical mass’ in 2016. The arrival of Lidl could therefore tip the balance in terms of pricing and private label scale, placing intense pressure on the margins of major players Coles and Woolworths and potentially costing jobs over time. This strong emphasis on private label products has also caused both Lidl and Aldi to eschew local food producers in the past, which could in turn be bad news for the nation’s vital agricultural sector.

Make no mistake; this market is pivotal for an Australian economy that has seen the demand for gold and coal decline dramatically in recent times. Given that Lidl have been criticised in the past for both marginalising local suppliers and slashing the price of fresh produce below the cost of production, Australian food production brands and distributors are obviously concerned about their long-term futures if so-called discount chains become dominant.

The Last Word

Ultimately, there are numerous pros and cons of Lidl making their long-overdue entry into the Australian marketplace. While consumers may prosper, for example, it is important that viable pricing is maintained while steps must also be taken to safeguard local food producers and the integrity of the agricultural sector.