When Aldi arrived in Australia, many in the supermarket sector feared the cut-price competition it was bound to generate. For a number of market watchers, however, the German discounter came just in time to invigorate a troubled market after the demise of Franklins. just-food.com’s David Robertson takes a look at the generic brand market and finds out how Aldi has prompted increasing interest in a flagging sector.


The arrival of discount giant Aldi in Australia had the major supermarkets and independents worried, but it seems that the Germans may have appeared just in time to save the troubled generic brand market.


The Franklins supermarket chain introduced generic brands, with the No Frills label, onto the Australian market during the late 1970s, leading many consumers to identify the company with low priced, non-branded products. But Dairy Farm International, Franklins’ Hong Kong-based parent, started selling stores earlier this year to reduce the Australian subsidiary’s massive debts. The Franklins stores have now been bought by market leader Woolworths and a handful of other companies, who are all in the process of rebranding and changing the No Frills generic products.


According to research from AC Nielsen, this will cause an overall decline in the generic brand segment from a 10% share of the whole food market to 9%. Furthermore, there was also concern among wholesalers that the two major supermarkets (Woolworths and Coles Myer) would use this opportunity to squeeze generic brands further, in favour of their more profitable branded equivalents.


“Franklins had a highest penetration of generics in the market with an average of 30% of its total business coming from this supply,” says Alan McKenzie, CEO of Australian Asia-Pacific Wholesalers (AAW). AAW supplies the Black and Gold generic label to independent stores as well as the IGA brand for Metcash and Signature for Foodland and its independents.

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“We expect the strength Franklins had to be diluted as these generic labels like No Frills and so on are changed to the brands used by these other stores. There will inevitably be some consumer confusion and also less reliance on them by the likes of Coles Myer and Woolies. That’s why the penetration of generics in the market is likely to fall back,” McKenzie added.


But the arrival of Aldi has panicked the bigger supermarkets into acting immediately to restore their generic brand lines. While they might have been happy to see the generic market slip following the demise of Franklins if there was no competition, the arrival of the Germans has put pressure on them to react.


Aldi has only about 18 stores in New South Wales importing the successful generic brand, price-competitive formula it developed in Germany. But the company is thought to have identified a number of sites for development in Canberra and is already eyeing Victoria and Queensland for expansion potential next year.


As a result of increased competition from German entrant Aldi, Coles is replacing and upgrading its Savings generic brand with Farmland in order to corner the higher priced end of the generic segment. It is also planning an own-brand Coles label that will fight directly with Aldi on price and quality.


Woolworths is taking a different approach, however. It will keep its Homebrand generic but it will also introduce specific new brands in certain product categories exactly matching the Aldi offers


“What we are seeing is a new strategy from Coles and Woolworths,” says McKenzie. “They are responding through their own labels. Coles is going in a different direction to Woolworths but they’re both aiming to match Aldi.”


The independent sector is also making changes; highlighted by the recent work McKenzie has been doing with his brands. IGA, a brand sold through the Metcash cash and carry outlets and Metcash-linked independents, will become sub-branded and linked to specific manufacturers like, for example, IGA Bellini pasta sauce, IGA Swift cleaning products, IGA Vitashine for hair care and IGA Fatal for insect killer.



Black and Gold, which AAW sells itself through independents, is also expanding its product range in order to compete more effectively.


“Our objective is to make our generic brands very competitive,” explained McKenzie. “Everyone is coming up with slightly different responses to Aldi and the jury is still out on how effective they will be but the idea is simply not to give Aldi any free hits in moving in here.


“The more Aldi stores there are, the more likely there will be more response in the generic market from the other supermarkets. Aldi keeps stimulating the market, which is a good thing after Franklins going. We don’t want to give them any easy roads forward because they’re a very formidable organisation and cannot be ignored.”


The generic market may also bounce back to its peak market shares of about 12.5% as the Australian economy slows. Generics inevitably do better in a worsening economic climate as consumers cut back and look for cheaper alternatives. But Australia remains a long way behind Europe in generic brand penetration. It is more on a par with the USA and South Africa rather than countries like the UK, where as much as 40% of a supermarket’s stock is own or generically branded.


“It seems most unlikely that Australia will get much higher penetration because people have made up their minds and those that will buy generic already do,” says McKenzie.


By Dave Robertson, just-food.com correspondent