David Jones takes on Myer in fancy food stakes as it looks to exploit “rush to the bottom” among grocery giants

A new dimension is about to be added to the Myer and David Jones department store war, as David Jones gets closer to rolling out its high-end grocery store offering.

The retailer increased profits 21% for 2016 to $168 million and yesterday chief executive of South African parent company Woolworths Holdings, Ian Moir, said that Australian supermarkets were in a “rush to the bottom” that the department store’s prepared meals and fresh food offering would look to exploit.

“Aldi is there and is taking market share like there’s no tomorrow,” Moir said.

“They’re not looking to the top end of the market and that’s where we want to be.”

The artisan grocery offering has been on the table since 2015, and existing food halls have been progressively rebranded over this time, including a partnership with chef Neil Perry for the development of the “creative direction” of the department store’s dining options.

David Jones told SmartCompany that it did not have any further comments on the rollout at this time, but did highlight the focus on leveraging the experience of Woolworths South Africa in the food space to make the most of the higher end offering, including working with pre-existing supply chains.

While the end game is “fresh produce and prepared meals”, the results presentation said that there would be an initial focus on café style and “to go” food in stores.

The first David Jones grocer is expected to open at the retailer’s Bondi Junction store before the end of the year, ahead a wider roll-out.

“Within three years we’ll have a reasonable-sized and profitable food business within David Jones,” Moir said, according to Fairfax.

Dr Michal Carrington, lecturer in marketing at the University of Melbourne, told SmartCompany David Jones is not the first department store brand to go in the direction of quality food, but the retailer is taking advantage of the fact that there is “nobody else is offering fresh food in Australia in a credible way” in the department store space.

“Retailers like Marks and Spencer, they’ve been playing in this zone for a while now,” Carrington says.

“Here, David Jones have found a niche, and they’re going to be incredibly picky about the what they’re putting in those stores.”

While Myer and David Jones have gone head-to-head in many ways over the years, fine food offerings might be the most striking form of brand differentiation that consumers have seen to date.

“DJs have always had their food hall, so it’s not a massive leap for them,” Carrington says.

“They know they have high value customers who can easily convert. They understand the supply chains and have things already in place.”

Myer’s food hall offerings have always been smaller scale, and building up a competition would be a big project, according to Carrington.

“I would say Myer have already made food part of their considerations. They will know through the customer profiling whether it’s smart to do similar [to David Jones] at this stage,” she says.

While the department and grocer store model has been well established in the UK and US, the Australian market has seen a couple of false starts in recent years. Gourmet food retailer Jones the Grocer entered voluntary administration for the second time in June, while Woolworths cut its Thomas Dux offering in January, leaving the market relatively open.

David Jones has taken a longer term view with its fresh food experience, with the retailer saying this week that it is not expecting the additions to add to profitability until the 2019 financial year.

The overall capital investment is expected to be between $75-$100 million over a three-year period.

Food is the new focus, but Woolworths Group South Africa has faced a challenging retail environment for its Country Road operations, for which sales were down over 12% for the year.

The group putting this down to a “challenging year” in the space and said the operations were “severely impacted by late winter and a range of issues” throughout the year.