Hard discounters change face of U.K. retail market

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Hard discounters change face of U.K. retail market

The grocery retailing landscape in the U.K. is undergoing unprecedented changes as hard discounters like Aldi and Lidl continue to raise their game and take market share away from the country's four leading supermarkets.shutterstock_126187640

The latest grocery share figures from Kantar Worldpanel show new records set by Aldi as well as high-end U.K. retailer Waitrose, causing pressure from both poles of the market to intensify on Tesco, Asda, Sainsbury's and Morrisons.

During the 12 weeks ending March 2, Aldi’s year-on-year growth rate accelerated to a record 33.5%, garnering the retailer a 4.3% share of the market. Lidl, meanwhile, held on to the record 3.2% share it reached last period.

Such is the pace of growth that Planet Retail estimates the value of the U.K. discount market will surpass £20 billion (US$33.3 billion) by 2018, at which point the discounters will command an 8.5% share of the market, up from 6.3% at present.

Over the past three years, Aldi, Lidl and Waitrose have taken a combined 3.5 share points away from the competition, which equates to £4.4 billion (US$7.3 billion) a year, according to Kantar Worldpanel.

This has put pressure on the U.K’s four largest supermarkets to compete for a shrinking middle ground in a zero volume growth market, and to cut their prices to compete directly.

Kantar Retail’s director of retail insights, Bryan Roberts, explains that the rise of the discounters is the result of U.K. consumers having less money in today's tough economic environment, which has changed purchasing habits.

"The economic picture in the U.K. has become more favorable for discounters," Roberts tells www.freshfruitportal.com.

"Wages have not kept pace with inflation, while fuel, travel and other costs have gone up. Shoppers either want to or have to spend less money, so they’re buying less food and cheaper items or they're shopping at a cheaper stores."

Shoppers are switching for good

In the past, shoppers used to temporarily switch to cheaper stores until the economy improved, but recent research shows that increasing numbers are permanently switching to the discounters because they have been pleasantly surprised.

According to Roberts, the discounters have not only exposed just how expensive some of the established retailers are, but also raised their game considerably in terms of their product offer, shopping experience, store availability and marketing.

In particular, he says the discounters have shown a willingness to modify their business models in line with changing shopper trends, such as introducing more fresh food and well-known brands to allow consumers to buy their entire weekly shop at a discount store.

"There was less of a focus on chilled food before but now the offer is better and also tailored to the U.K. market with items like convenience food or ready-made meals," Roberts explains.

"Lidl has just introduced fresh fish too."

General standards are also better, according to Roberts. Plus the year-round availability of products has significantly improved over the last decade, coupled with more variety and local sourcing.

In addition, Roberts says the discounters have learned from markets like Spain and France by awarding more space and prominence to fresh produce.

Furthermore, Aldi’s "Super 6" promotion, which discounts six products in fresh ranges like fruits and vegetables or fresh meat, has been very successful and even replicated by some of the supermarkets.

But perhaps most importantly of all, the expansion of stores nationwide has helped the discounters to grow, according to Roberts.

"Aldi was always focused on new-builds in distinct locations such as the edge of towns or near roundabouts but now they're becoming more flexible, particularly in key, central areas like London where store numbers were low," he says.

In a bid to crack the London market, Aldi opened a convenience store in a former clothes shop in Kilburn last year, which provides no parking and basket-only checkouts.

Lidl, meanwhile, opened a store in the neighboring northern London suburb of Camden, which also focuses on basket shopping.

Efficiency: the key to success

Stephen Springham, senior retail analyst at Planet Retail, believes the "enduring success" of the discounters owes much to three key dynamics – physical expansion, an increasing average basket size and a widening customer base.

Roberts also claims that their success comes down to efficiency, from production and manufacturing to the stores themselves.

"Lots of products are displayed on pallets in store so they are delivered in shelf-ready packaging," he explains.

"The ranges and store sizes are also a lot smaller which means discounters have fewer costs, plus shoppers can also get around very quickly which appeals to the time-conscious.

"Aldi’s 'Every Day Low Prices' strategy is very efficient too. The traditional retailers like Tesco offer various 'Buy one get one free' promotions that cause huge sales peaks and troughs and lead to huge logistical disruptions, whereas Aldi has the same products coming in every week."

The supermarkets’ response

With Aldi and Lidl expected to each open 25-40 stores annually over the next five years, analysts claim that the U.K.’s four leading retailers will not be able to stop the rise of the discounters, despite promising aggressive price cuts.

"It’s been consistently proven in the last few years that the supermarkets can’t restrain the advance of the discounters, so they will have to learn to co-exist," Roberts explains.

But while Tesco and Asda have the clout to spark a full-blown price war, analysts agree it is unlikely to happen because of the universally damaging consequences of a race to the bottom.

Furthermore, prices have become less important to U.K. shoppers because of the increasingly homogenous nature of the market where the main supermarkets already match their prices against each other.

"All courses of competitive action will be pursued and exhausted before a price war is instigated," Springham points out.

"It really is the last resort."

In order for the supermarkets to stand out from the discounters, Roberts says the focus needs to be on a differentiation of quality, freshness, provenance, theater and enjoyment for shoppers.

"Thankfully there is a growing awareness that differentiation is more important than just cutting prices," he notes.

"We may see differentiation through with the products on offer in terms of better seasonality and more Fairtrade or organic products.

"Already, Tesco and Morrisons have started refurbishing their stores. They have also begun to introduce misters to their produce displays to keep the produce fresher."

Photo: www.shutterstock.com


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