Kaufland Withdrawal Leaves Landlords in the Lurch

German discount retailer Kaufland has withdrawn plans for its hypermarket expansion despite investing over half a billion dollars on property, staff and distribution.

After confirming in 2017 plans for an “ambitious Australian investment and development program”, Kaufland, led by Australian managing director Julia Kern, moved to lay the foundations of a network of large-format supermarkets planned on the east coast.

Kaufland, which is owned by the world’s fourth largest retailer, Schwarz Group, was well advanced in its Victorian expansion, with five stores approved and as many as 20 others in the planning stage.

Kaufland also had locations in South Australia and Queensland in its pipeline, with the first of its stores expected to open in early 2021.

The retailers first distribution centre was also under way, a 110,000sq m automated facility set be built on a 28-hectare site on the Hume Highway in the Merrifield Business Park being developed by MAB Corp and Gibson Property Corporation at a cost of $460 million.

Kaufland purchased the Merrifield site in March last year and was due to settle on the full transaction within weeks.

The company's withdrawal has shocked many, given the size of investment already placed on Australian shores, with development partners, suppliers, contractors and landlords left in the lurch.

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”.

“This was not an easy decision for us, we always felt welcome in Australia,” Kaufland acting chief executive Frank Schumann said.

“We would also like to thank our business partners, who offered us great support over the last few years.”

Australia's $100 billion food and grocery market provided a number of barriers to entry for Kaufland—which uses a model relying on distribution of upwards of 30,000 niche products.

The discounter sells mainly private label or homebrand food and groceries as well as general merchandise including electronics, clothing, hardware and homeware.

Kaufland currently operates in Germany, Poland, the Czech Republic, Romania, Slovakia, Bulgaria, Croatia, and the Republic of Moldova with roughly 1,300 stores and 132,000 employees.

“In Europe, we see a great deal of growth potential,” Schumann said.

“We will actively shape the consolidation of the European retail sector, thus further reinforcing our leading position.”

Kaufland noted its 200 freshly installed Australian employees, including former Myer chief executive Richard Umbers, Woolworths, Metcash and Aldi executive Mark Hewlett and former Woolworths and Coles category manager Timothy Walsh, were informed of the decision on Wednesday.

Following the announcement, Coles shares jumped 3.04 per cent to close at an all-time high of $16.62 while shares in Woolies leapt 3.2 per cent to end the day at an all-time high.