Executive Summary

The biggest retailer in Europe, Schwarz Group, is reportedly bringing its Kaufland discount hypermarket format to Australia. The company told us that it is still scoping the market.

• Kaufland could capitalize on the strong Australian consumer demand for value groceries, which would place pressure on the dominant grocery retailers, Coles and Woolworths.
• However, Kaufland’s ability to build share in a developed, consolidated retail market is untested. So far, Kaufland has launched outside Germany only in Eastern European countries.
• We think Kaufland would face greater challenges in nonfood categories. It would be entering a market that not only has a number of incumbent value general merchandise retailers, but also one that is set to see more and more nonfood sales migrate online.
• In short, there are opportunities for a discount grocery offering in Australia, but we think any major addition of nonfood space would be challenging in a sector that will see more sales switch out of brick-and-mortar stores