A leading retail analyst says Dick Smith's food business was "bound to fail" as consumers continue to choose what is best for their wallets, and should act as a warning sign to other local food suppliers.

Peter Ryan, who has been working as an analyst in the retail sector for almost 40 years, said Dick Smith's announcement that he would shut down his food business was "no surprise".

"Every bit of research we put out suggests that although most people say they'll buy Australian-made, 99 per cent of people vote with their wallet and don't do it," he said.

"The most powerful aphrodisiac is price ... they're always going to take the cheaper option."

Mr Smith blamed German supermarket giant Aldi's "extreme capitalism" for the demise of his food business, as he announced it was closing in order to avoid bankruptcy.

Dick Smith put the blame on Aldi for the collapse of his food business. ( ABC: Charlie McKillop )

Aldi responded to the claim saying "… the recognition we have earned as Australia's most trusted brand is a result of our commitment to openness, honesty and integrity in all our dealings".

Dick Smith Foods has 13 products including a range of spreads, tomato sauce, and cereal. It will be phased out over the coming months.

Australia, we have a problem

Mr Ryan said the collapse of the Dick Smith food business should trigger a warning to other Australian companies.

"Unless you [a business] have a demonstrative point of difference, the stories like Dick Smith and the string of other retailers that have collapsed are going to become more and more common," he said.

"I applaud his [Dick Smith's] sentiment, but it was bound to fail. And though I appreciate his comments about Aldi, Aldi is the scapegoat for the system of low-cost sourcing and global distributing.

"We have a big problem here in Australia at the moment in retail."

The collapse of Dick Smith's food business comes after a string of Australian fashion retailers — some household names such as Oroton, Maggie T and Esprit — have gone into administration in the past 18 months as a combination of online pressures, price warring and consumer indifference add up.

The Dick Smith domino effect

The collapse of Dick Smith Foods has also hit its suppliers.

Kevin Webb (R) is the managing director of Spring Gully Foods, which has produced spreads for Dick Smith. ( Supplied: Spring Gully Foods )

Adelaide family business Spring Gully Foods has been one of Dick Smith Foods' key suppliers for almost a decade, producing his fruit spreads, honey, and the all-too-familiar Ozemite.

For the foreseeable future, it appears as though Spring Gully will maintain Dick Smith's brand legacy if viable.

Its managing director, Kevin Webb, said he was working closely with Woolworths and Coles to "maintain what Dick's been doing" since he founded the company in 1999.

Mr Webb said they would continue to sell spreads under Dick Smith Foods for the next 12 months, then make a decision about labelling.

"The important thing is content and it's as Australian as you can get," Mr Webb said.

"We're obviously saddened [about the closure] … Dick's put so much work into the business … we've been proud working with him, it's his business and his decisions but we still want to continue making those products."

Mr Webb said Mr Smith's decision to close was made in the last month.

Spring Gully also sells foods at retailers under its own name.