Discount supermarket chain Aldi has lifted the lid on its Australian operations via a submission to a parliamentary inquiry into corporate tax avoidance and minimisation.
In its submission the German-disruptor tackles the murky world of corporate tax avoidance by stating that it does not undertake the controversial practice of artificially reducing taxable profits in Australia via accounting tricks.
Other prominent multi-nationals operating Down Under have also been accused of "profit-shifting" by effectively shifting receivables and expenses between Australia and other jurisdictions to reduce tax bills on Australian generated profits.
Aldi entered the Australian market in 2001 with a big reputation for decimating the margins of its rivals across Europe and now has 373 stores repeating the trick across Australia.
The primary victim is Woolworths Limited (ASX: WOW), which is starting to resemble a headless chicken with its management changes and multiple earnings downgrades on the back of falling sales at its eponymous supermarkets.
It's no surprise many cost conscious families and consumers are switching to Aldi when the business says it can offer grocery basket savings of 23% to 50% compared to its competitors like Coles – the supermarket chain operated by Wesfarmers Ltd (ASX: WES).
Aldi revealed its Australian revenues have grown from $3.14 billion in 2010 to $5 billion in 2013 with plans to keep expanding into South Australia and Western Australia in particular.
Woolworths is already wilting under the heat exerted by Aldi's success and anyone who thinks it's too dominant not to rebound only needs to consider the downfall of UK supermarket operator Tesco Plc.
Tesco is similar to Woolworths in that it was once considered as "too big to lose" by investors including the great Warren Buffett. All those investors were left shocked by its collapse in the face of competition from the likes of Aldi and Buffett is unlikely to be shopping for Woolworths after his Tesco's experience.
Arguably the muted outlook for Woolworths is now reflected in a share price of $27 on 13.8x trailing earnings.
The big question though is whether Woolworths will be able to reverse 2015's earnings decline?
It's a big ship and will take some turning over a time period during which competition is likely to intensify.
I would wait until evidence materialises that Woolworths is back on track to deliver earnings growth before considering purchasing the stock.
