Christopher Niesche: Discount supermarket Kaufland's exit highlights poor state of Australian retail

German supermarket retailer Kaufland has ditched its Australian expansion plans follow trouble on the home front.

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German discount supermarket Kaufland stunned staff, landlords and the business community last week when it quit Australia after investing about half a billion dollars here and before opening a single store.

The company, owned by the world's fourth-biggest retailer Schwartz Group, said it was abandoning Australia for better investment returns from Europe.

Kaufland had made considerable progress in the three or so years after the Schwartz group applied for Kaufland trademarks in Australia. It had allocated as much as A$523 million ($540 million), secured 23 supermarket sites, started building a distribution centre, signed up thousands of suppliers and hired 200 staff.

Its exit can only be an indictment on the poor state of Australian retail. It is clear Kaufland doesn't expect poor sales, weak consumer confidence and low wage growth to turn around any time soon.

It also looks like a snap decision – only a week before the announcement, the German parent topped up the local operation's coffers with a A$100 million cash injection. The bushfires and the disruption they bring and the additional hit to consumer confidence look like they were a factor in the decision.

The departure is bad news for consumers as Kaufland had threatened to kickstart a price war and put pressure on Coles and Woolworths, which dominate the supermarket sector, although they were facing some challenge from Aldi, another German supermarket chain, which has been in Australia since 2001.

Investors were quick to push up the share prices of both supermarket chains following the announcement, as well as hardware and discount retailer Wesfarmers.

Kaufland is a big box style discounter which sells mainly homebrand food and groceries as well as electronics, clothing, hardware and homewares. As such, it would have taken sales from a wide range of retailers and increased pressure on prices.

Australia's weak retail environment might not be the only factor influencing its shock announcement.

The competition watchdog is about to launch an investigation into allegations that major fresh food suppliers planned to withhold supply to the German retailer, fearing reprisal from Coles and Woolworths. Chairman of the Australian Consumer and Competition Commission Rod Simms has appealed for any retailers with knowledge of the situation to come forward.

Politicians, consumers and businesspeople should all be very concerned the market dominance of these major supermarket players can keep out new entrants. Even if the supermarkets didn't actively use their market power to apply pressure – suppliers might have decided on their own that it would be wiser not to supply Kaufland. The exit of another competitor will underwrite their profits and leave consumers with less choice and higher grocery bills.

All up, it looks as if Kaufland decided, in the context of Australia's weak retail environment, that it wasn't worth the considerable time and investment – including many years of likely losses – required to muscle its way into the tightly-controlled retail sector.

It will be interesting to see what the ACCC uncovers about the dominance of the two major supermarket chains.

Trivago tripped up

The consumer watchdog has just successfully completed an investigation relating to another German company, hotel comparison site Trivago. It has found the company misled consumers about cheap hotel deals, the Federal Court ruled last week after the ACCC brought a prosecution.

In its advertising and on its website, the Dusseldorf-based company gave consumers the impression it was scouring the web for the best available hotel deals and ranking them. It purported to list deals according to value, with the best listed at the top of a user's search results.

But the Federal Court found Trivago didn't actually show customers the cheapest deals for hotel rooms. Instead, it promoted advertisers who paid them the biggest fees.

"Contrary to the impression created by the relevant conduct, the Trivago website did not provide an impartial, objective and transparent price comparison service," Federal Court Justice Mark Moshinsky said in his written judgement.

The Federal Court found Trivago didn't actually show customers the cheapest deals for hotel rooms. Photo / File

Additionally, the company was also found guilty of false and misleading price comparisons because it compared a standard room rate with a luxury room at the same hotel.

Trivago betrayed the trust of consumers who expected they were getting the best deal when they logged on to the site. Those customers will now be feeling duped and wondering how much extra they paid for accommodation promoted by Trivago.

It's a good reminder for consumers not to place too much trust in comparison websites and to always supplement them with their own research.

It could also prove expensive for Trivago. Lawyers at plaintiff firms are bound to be running the numbers to check on the feasibility of a consumer class action against the company.

For the ACCC, it's a big win and, in conjunction into last year's investigation into whether Facebook and Google have too much power in the advertising and media sectors, demonstrates the regulator is making a good start on protecting consumers' interests in the digital economy.