After more than two years of hype, promises of thousands of new jobs and billions of dollars pumped into local economies, German supermarket chain Kaufland has announced a shock decision to abandon Australia – and the ongoing drought and bushfires may be to blame.
The European giant broke the news to its 200 Australian staff on Wednesday, but remained vague on the reasons behind its shock decision.
Kaufland had more than 20 stores in the pipeline, with the first store expected to open later this year or early next year.
Construction was already under way for a slew of stores and distribution centres in Victoria, South Australia and Queensland.
In a statement to media, Kaufland said the decision was about "focusing business activities in Europe and is in no way a reflection of the efforts of our local employees or management, or the support Kaufland has received from the Australian business community or governments".
Kaufland International acting chief executive Frank Schumann said abandoning the Australian market was "not an easy decision", but that the company sees "a great deal of growth potential" in Europe, where it has more than 1300 stores and 132,000 employees.
Bushfires and drought may have prompted withdrawal
Kaufland's decision to withdraw from Australia may have been triggered by fresh food supply concerns linked to this summer's catastrophic bushfires and the ongoing drought, Queensland University of Technology Professor of Marketing and Consumer Behaviour Gary Mortimer said.
Kaufland's announcement had "shocked the market and commentators", Professor Mortimer told The New Daily.
"Kaufland has over the last two years identified and confirmed at least 22 sites across the nation, mostly in Victoria. So preparations were well under way for an opening in 2020 and into 2021," he said.
I think this just goes to show how challenging the Australian food and grocery market is.’’
Kaufland would have encountered "issues accessing suitable retail management talent and staff" as well as supply constraints exacerbated by drought and bushfires, Professor Mortimer said.
"Supply becomes an issue because you're dealing with perishable food stuff. Having another player in the market would take such inventories (food and groceries) out of an existing market," he said.
The drought and unprecedented bushfire season have "put some constraints around" those types of inventories.
"Potentially Kaufland has looked at the hyper-competitive nature of food and groceries in Australia, and have decided to concentrate their efforts elsewhere," Professor Mortimer said.
Read more: Australians will pay more for fresh food as a result of bushfires, government warns
From breaking ground to broken dreams
Over the past year, Kaufland held multiple ceremonies to break ground on multimillion-dollar stores and distribution centres in Queensland, South Australia and Victoria.
Victoria will be the worst affected by the company's decision to pull out of Australia, with Melbourne chosen as the company's Australian headquarters.
In March, the Andrews Labor government boasted it had "helped bring one of the world’s largest retailers to Victoria, in a move that will create more than 1500 jobs and inject almost half a billion dollars into the state’s economy".
In June, the company celebrated commencing construction of a $255 million distribution centre at Mickleham, Victoria, which was expected to create 600 new jobs for the area.
Australia is one of the fastest-growing regions in the world, and we are excited to grow with it,’’ Kaufland Australia director Maximilian Wiedmann said at the time.
In September, South Australian Premier Steven Marshall stood alongside Kaufland Australia managing director Julia Kern to celebrate the start of construction at Kaufland’s $24 million Prospect store that was expected to generate 150 jobs throughout the construction phase and 100 jobs once operational.
Read more: The supermarket chains with the most to fear from Kaufland
"To be building one of our first stores in Australia, here in Prospect, reflects our passion and desire to grow with this incredible state,” Ms Kern said.
“We look forward to generating local jobs, creating opportunities for businesses and suppliers, and continuing to grow organically in the community as a result of our long-term investment in South Australia."
On Wednesday, Kaufland said its existing Australian investments, including properties bought for retail outlets and distribution infrastructure, would "be discussed with the relevant parties in coming days".