Opinion : Kaufland exiting Australia.

I was asked about my take an the reasons of Kaufland exiting Australian market. Please find my opinion piece. It may not be one simple, single thing that may have led to the decision, however, it may be a cumulative effect. Here are few ideas that I would like to share- 

- Regulatory regime may not be helpful for them in Australia. 

- Taxation (30% on business in Australia; 15% in Germany) 

- Cultural fit (you can compare cultural dimensions between Australia and Germany here (https://www.hofstede-insights.com/product/compare-countries/) . I see long term orientation has the widest gap between cultures. Would it have to do with the long term economic future of Australia?

- Business models where automation is being pushed we don’t need large format physical stores but outlets with fulfilment from supply chains

- Costs are high to start and operate a business in an environment where Germany’s GDP is growing at a faster rate than Australia ( https://www.worldometers.info/gdp/gdp-by-country/) and Kaulfland may have access to higher population. 

- Investors of Coles and Woolworths were also going to miss out knowing that together they have over 65% of market share(Draft Treasury report of 2018 - https://treasury.gov.au/consultation/c2018-t306880 ), with strong relationships competing on price with local suppliers may not have been easy. 

- Wages are high but human capital and innovation ranking is lower in Australia ( comparison at https://countryeconomy.com/countries/compare/germany/australia)

- Population density is low in Australia compared to Europe however unemployment is higher ( Australia in 21 times the area has less than a third of Germany’s population ) 

- They are writing off 500m in Australia perhaps that speaks a lot from European perspective about the long term prospects of business and market. I do not think it is a financial restructuring

- Brexit may give a better position for them in Europe. Unless it is working on a mechanism to negotiate a better deal before they walk away. That said, the leadership should try and negotiate with them to stay.

I welcome your thoughts comments and suggestions below

Best

Sbabbar

Sameer BabbarComment