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The Sydney Morning Herald reports that the man who helped Aldi establish itself in Australia says that market leaders Woolworths and Coles "need to spruik their huge product range and services such as delicatessens to battle Aldi's cheaper but utilitarian offer."

(Quick linguistic note. "Spruik" is defined as Australian slang that means "to speak in public," especially in the case of a salesman or showman. I mention this because it was a word I'd never heard before. Clearly I need to spend more time in Australia.)

According to the story, "Woolworths, Coles and wholesaler Metcash are cutting product prices and product range to fight Aldi, which has an estimated 10 per cent of Australia's $90 billion-odd grocery market and is expanding into South Australia and Western Australia."

The former 23-year Aldi executive, Paul Foley (who now operates a retail consultancy), says, "What I think the incumbents have to do is market the choice that they're offering, and they have to be first to market with new concepts." And, "Foley estimated Aldi would have between 700 and 800 stores over the next seven to eight years, and would nab 15 per cent market share."

Noting that Aldi has a limited selection, a higher percentage of private label products and prices that tend to run about 20 percent cheaper than Woolworths and Coles, Foley says that the only way that the more traditional retailers can compete is to emphasize their differences - but to understand that they also have to lower prices, and do business in a climate that is going to have lower margins that they've been used to.
KC's View:
This is what's called an object lesson for US retailers that may be laboring under the delusion that as Aldi expands and Lidl comes to the US, it won't really affect them because they've been serving certain communities for a long time and they have a lot of name recognition and loyalty, and they offer services that Aldi and Lidl do not.

There are a lot of companies like this. (You know who you are. Even if you prefer to deny it.) And the thing that such companies have to realize is that when companies like Aldi and Lidl invade a market, they can change a lot of longtime shopping habits. Good enough no longer is good enough. Perceived customer loyalty suddenly seems to be more illusory than believed. And services end up not being the differential advantage that people thought they were.

And just as important, because prices get driven down by the discounters, margins go down as well ... which affects so-called "traditional" companies' ability to invest and compete.

This is what has happened in the UK. It seems like what is happening in Australia. And there's no reason to think that this cannot happen in numerous US markets.