Already facing intense price competition from Aldi, supermarket giants Coles and Woolworths could lose some of their high spending customers to David Jones’ new upmarket food stores.

Ratings agency Moody’s says plans by David Jones to expand its premium food selection are credit negative for Woolworths and Wesfarmers owned Coles, as it could weaken their market share.

David Jones will reportedly open the first of its new upmarket grocers at its Bondi Junction store in Sydney by mid-2017, before similar moves at its flagship stores in the Sydney and Melbourne CBDs.

South Africa’s Woolworths Holdings, which bought David Jones in 2014, has described the battle between Coles, Woolworths and Aldi as a rush to the bottom, and highlighted an opportunity to take market share in higher end groceries.

“The risk is that with supermarket operator Aldi already competing aggressively for low- to middle income consumers, David Jones’ targeting of high-income consumers will take away market share from Woolworths, Coles and independent supermarkets as competition increases at both ends of the socioeconomic spectrum,” vice president Ian Chitterer said.

“Although we expect that the scale of David Jones food retail will remain small relative to Woolworths and Coles, which collectively control more than 60 per cent of the Australian grocery market, the upmarket customers that David Jones is targeting are likely to be less price sensitive, spend more in absolute dollar terms and be more profitable than Aldi’s customers.”

Woolworths Holdings operates food stores in South Africa that are similar to Marks & Spencer in the UK, focusing on high quality products and catering to upper income consumers, Chitterer said.

Moody’s believes a key element in Woolworths Holdings’ strategy is the use of the well known David Jones brand.

AAP

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