Australia: Aldi scraps big sheds, opens high-tech distribution hubs

Discount Retail Chain Aldi Australia (German family owned) is ramping up efforts to take on rivals Coles and Woolies, telling staff it will build three new highly automated distribution centres and close six existing warehouses.

The discounter's plans to accelerate the rollout of its new DCs with significant changes expected as early as 2025, will force a reckoning with one of Australia's largest landlords, Charter Hall, which last year scooped up ownership of Aldi's six existing warehouses in a hefty deal worth about AU$1 billion (US$0.75 billion).

The grocery chain plans to accelerate the rollout of its new DCs. At the time the deal was struck, Charter Hall's purchase of Aldi's warehouses was the second largest industrial transaction on record and added six top-tier warehousing facilities to a AU$6 billion (US$ 4.5Bn) fund jointly owned by Charter Hall Prime Industrial Fund and several Allianz companies.

Aldi offloaded all the warehouses in a sale and leaseback deal with seven-year leases in place, plus multiple seven-year options to extend its occupancy if required.

A spokesperson for Aldi confirmed that, at the beginning of this month, it had: "let our employees know we are in the very early planning stages to build three new fit-for-purpose distribution centres to serve the growing demands of our east coast operations."

"There will be no significant changes to business operations until at least 2025," they said. "Right now we are focused on informing and consulting with our people regarding our future plans."

Those plans include scrapping its existing six purpose-built warehouses, two each in Victoria, NSW and Queensland and replacing them with three new highly automated distribution centres.

Aldi would not be drawn on the location of the new centres, although staff were told there will be one in each of the three eastern states. It also refused to comment on whether it will commission, build and own the new facilities itself or structure a sale-and-leaseback deal with industrial landlords to house them on large-scale existing estates.

Retaining Aldi's patronage among its extensive property holdings would be a coup for Charter Hall and would soften the blow of Aldi's decision not to take up the lease options on its existing facilities. The 2020 transaction's purchase yield of 4.75 per cent implies an expectation by Charter Hall that Aldi was likely to extend its leases.

Unfortunately for the fund manager, Aldi is likely to have multiple other strong industrial landowners and developers pitching for its business.

Aldi's existing facilities in Sydney, Melbourne and Brisbane were designed and built by the German giant to service its rapidly growing 500-strong chain of discount supermarkets. The company's move into the automated distribution centre space comes at a lag to its main competitors Coles and Woolworths, which have been trialling and building automated sites for the past three years.

The strategy switch follows an unprecedented boom for the grocery sector during the pandemic which has required supermarkets to rethink how they manage their supply chains to keep up with customer demand.

It could also signify a possible shift into online grocery delivery for Aldi, a space the supermarket has historically stayed out of focusing instead on its no-nonsense store formats and its range of highly popular 'special buys'.

Industrial and logistics warehousing is proving to the best property class in the face of the pandemic and online shopping onslaught, hence the desire of large ASX-listed players like Charter Hall to own sheds like Aldi's.

Agency Colliers says the sector was the most resilient asset class in 2020, providing a total return of 13.9 per cent: almost three times the rate recorded for office (4.7 per cent) and significantly above the negative 10.1 per cent recorded for retail.

Online retail sales require three times the amount of warehouse space compared to traditional brick-and-mortar transactions, a fact that is likely to buoy demand levels as retailers like Aldi upgrade online store platforms.

Warehouses will remain front and centre. Despite its rapid growth in Australia, e-commerce still represents only a fraction of total retail spending at about 10 per cent and has a long way to go to catch up with Britain's 26 per cent and America's 19 per cent, Colliers said.


See here for more: https://www.smh.com.au/business/companies/aldi-scraps-big-sheds-opens-high-tech-distribution-hubs-20210709-p588bx.html