Land values up amid retail site competition

THE state’s supermarket landscape is in for a major shake-up in the next few years as discount grocer ALDI closes in on a site for its distribution centre, as well as locations for its first tranche of stores.

ALDI was not prepared to discuss its roll-out strategy for Western Australia, but retail analysts suggest the German discount retailer is taking a close look at a number of potential suburban sites in; and not just retail-zoned land.

The movements surrounding ALDI’s plans come amid talk bulk grocery retailer Costco could be running the rule over a Perth site.

Greg Malempre, director of Location IQ, a company that works with retailers to identify suitable store locations, said Costco was planning to roll out eight stores nationally, which would in all likelihood include a WA store.

“There’s probably only one opportunity here (in WA) for Costco and I would think that would be an airport site or maybe a central location near Burswood Casino,” Mr Malempre told Business News.

ALDI’s grocery model, with its smaller product range and no-frills presentation, does not go head to head with the supermarket majors, and in many cases its stores are in close proximity to Coles and Woolworths outlets.

Colliers International retail director Mark Werrrett said ALDI had indicated it wanted as many as 30 outlets in WA, and up to 20 by the time it opened its distribution centre in 2016.

ALDI has a preference for owning its properties and its search for suitable sites is likely to add to the upward pressure on retail-zoned land in new suburbs.

Since the banks tightened their lending criteria for property projects, Coles and Woolworths have become developers in their own right, triggering bidding wars for land parcels in greenfields locations.

This has pushed the average cost of retail land from $200 per square metre to as high as $300/sqm.

Mr Werrett said Coles and Woolworths didn’t want to tie up capital in developments when they could use that to fund new stores, but at the same time they had to secure footholds in these new suburbs.

ALDI is also understood to be prepared to look at more expensive residential-zoned sites if it can make its strict store formula fit the site.

And they are more than happy to go into existing shopping centres and capitalise on the pulling power of the existing major supermarket.

The third player in the supermarket sector, IGA, has been hard hit but the introduction of Sunday trading in WA as well as the deflationary effect of the intense rivalry between Coles and Woolworths.

One retail analyst, who did not wish to be named, said the challenge for Metcash and the IGA stores it supplies was the financial might of Coles and Woolworths and their capacity to constantly upgrade and refresh their offerings.

The majors have proved adept at tailoring their stores to fit smaller inner-city sites, such as the Coles outlet in Raine Square in the city.

But they don’t always get it right, as evidenced by Woolworths’ troubled foray into hardware and its loss-making Masters brand.

Woolworths admitted in July it had made some fundamental miscalculations about the hardware market but Mr Werrett forecast the business would adjust its strategy and, in time, become more competitive with the market leader, Bunnings.

“Watch this space. Bunnings has this very established offer and they have a very established network of stores and sites,” Mr Werrett said.

“It was always going to be difficult for Masters to gain market share quickly and … as with any new concept it will require some adjustment, but it would seem that there are some areas of the business that are portably not working.

“Woolworths is a very experienced and established retailer, they have the resources and they will just do some fine tuning.”

It’s understood Woolworths paid top dollar to secure suitable sites for its network of stores, opening up a bidding war with rival Bunnings and pushing up the price of large format retail sites in its preferred locations.

Masters has forecast it will break even during the 2016 financial year.