January 22, 2020 / 6:46 AM / a month ago

UPDATE 1-Germany's Kaufland surprises with no-expansion plans for Australia

(Adds analyst comments, details and background)

SYDNEY, Jan 22 (Reuters) - German supermarket chain Kaufland has cancelled its plans to expand to Australia and will concentrate on its European core markets instead, local media reported, surprising analysts and sending shares of local peers sharply higher.

“This was not an easy decision for us. We always felt welcome in Australia,” said Frank Schumann, acting CEO of Kaufland International, according to the Australian newspaper.

“We would like to thank our employees and we apologise for the disruption this decision will cause.”

Media representatives of Kaufland did not respond to Reuters’ request for comment.

About 200 staff were informed about the decision on Wednesday, with an assurance that “generous packages” would be offered, the newspaper reported.

According to the report, the company - which had announced plans to launch at least five hyperstores in Australia from 2021 - did not cite a reason for its decision.

About 20 Kaufland stores were at various stages of planning and the German company had also started construction on at least one store as well as a distribution center in Melbourne, according to Credit Suisse.

Shortly after the report surfaced, shares in the local market’s main players - Woolworths Group and Coles Group - climbed about 3% each.

Analysts were also surprised by the move, despite some reservations about Kaufland’s success.

“We didn’t believe it would be a successful proposition and thought it was surprising that they were entering in Australia with the hypermarket format in the first place,” Credit Suisse retail analyst Grant Saligari told Reuters.

“Now, to reverse it within this time-frame, I can’t guess as to why they’ve done that. It strikes me as very unusual.”

As of Wednesday, Kaufland was still advertising for jobs on its website, promoting its development plans in Australia and intentions “to purchase suitable and appropriate sites”.

Reporting by Paulina Duran in Sydney; Editing by Sherry Jacob-Phillips

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