ALDI - Winning Awards but Misleading Consumers

Discount supermarket Aldi is in the news again. It scooped 16 gold awards at the supermarket industry magazine “The Grocer” s taste tests of various own label brands. And it has been criticised for misleading consumers by putting a Scottish flag on packs of beef and turkey from South America and the EU.

The awards story is impressive. Aldi came first, Tesco came in second with 12 golds, Asda scored 11, Marks and Spencer 8, Waitrose 3, and fellow discount supermarket Lidl achieved 4 golds. The awards come on top of Aldi’s Oliver Cromwell  gin winning silver in the International Spirits Challenge, beating  Bombay Sapphire which sells at twice the price, and collecting a silver award for champagne.

The Scottish flag story is shameful, and only came to light through the vigilance of NFU Scotland.  Aldi’s limp response was to say that no laws were broken but they recognised that featuring a Scottish flag could make shoppers think the products were wholly Scottish, and they have promised to re-label. At best their action was naive, at worst deliberately misleading.

Low prices combined with a growing reputation for quality mean that Aldi is showing the fastest growth of all supermarkets in the UK, up by 31% in the last twelve weeks according to Kantar Worldpanel, the company which monitors grocery sales. Fellow discounter Lidl grew by 9%. The only other grocer showing significant growth is Waitrose, which operates at the premium end of food shopping. The big four are stumbling along with growth in the low single digits.

The combined share of Aldi and Lidl now stands at a record 7.9%, and industry watchers are asking how far it can go. Conventional wisdom says that the strength of UK competition means that discounters will never touch the heady heights achieved in home country Germany where they enjoy a combined share of just under 30%.

But both Aldi and Lidl are raising their game. Aldi had just launched a trial convenience store in Kilburn, tapping int0 the growing tendency of shoppers to visit local stores to save petrol costs and  ensure they buy only what they need and not be tempted by the plethora of stuff available at bigger shops.

Lidl has just announced that it is increasing the shelf space it devotes to fresh meat and poultry by 50%.

Across the water in Ireland Aldi and Lidl together command a share of 13.6% of the grocery market, up from 11.6% last year. Their growth is coming from new customers as well as regular shoppers, which has not to date been the case in the UK.

There seems to be room for further discounter growth, but to achieve it requires continued rock bottom prices, whilst improving quality.

It also requires consumer trust, especially when it comes to buying fresh food. And here is where the discounters have stumbled. The Scottish flag issue reflects badly on Aldi, and both Aldi and Lidl were caught up in the horse meat scandal. Aldi and Lidl will be painfully aware of the need to take a firm grip on supply chain issues, and stop any erosion of consumer trust in its tracks.

Discount Supermarket Growth Slows - Is It All Over for ALDI et al?

Discount supermarkets like Aldi and Lidl are making headlines again, but this time for sales slowing rather than growing.

Editor of The Grocer, Adam Neyland wrote a piece a couple of weeks ago entitled “Is the discount boom over?” This was followed a few days later by figures from market research company TNS Worldpanel, which showed that in the 12 weeks to June 14th Sainsbury and Morrison grew faster than Aldi and Lidl, with Asda growing at about the same rate. Actual figures were +6.5% for the total grocery market, Morrisons +9.3%, Sainsbury +8.9%, Aldi +8.7%, Lidl +7.5%, and Asda 8.2%. It’s a marked change. In the previous months the discounters were growing at anything up to 3 times the rate of their main stream competitors.

Why the change?

As Neyland points out some slowdown in growth was inevitable as competitors fought back with price promotions, million £ advertising budgets, and a focus on the quality and value of their fresh food. Which is a lesson to all of us to never underestimate the competition, particularly in UK grocery.

I think there is more to it.

It is interesting to reflect on what caused the discounter boom in the first place. Of course some of it was due to consumers on a strict budget searching for value as food prices rocketed. Much responsibility though must be laid at the door of the media. Not a day went by without headlines about the middle classes turning to Aldi, that it was now more chic to be seen with an Aldi bag than a Waitrose one, and that discount car parks were full of Range Rovers and Mercedes. No wonder many read the hype, worried about missing out, and nipped along to see what all the fuss was about. The monetary value of all that media coverage must have run into millions.

The big question is, of those who made the visit, how many tried, were disappointed and never came back versus how many changed their shopping habits and returned every week. Market research company Him! (yes, new to me too, but they are a genuine outfit despite the odd name), does regular research with discount shoppers. They say that shoppers are less satisfied with discounters this year than they were in 2008. Also that recent shoppers, and more upmarket shoppers expected more from the stores and were disappointed by what they found when they got there.

There is a lesson here too, which is that a business cannot be built on people buying just the once, rather, long term growth will come from having a solid base of loyal fans who buy again and again.

So what of the future?

Discounters have many devoted customers, but it is not a way of shopping that appeals to all. If it were, the market share for all three discounters would be far higher than its current 5.9%, which compares with a share of 11.6% for Morrisons, 16.1% for Sainsbury, 16.8% for Asda, and 30.8% for Tesco.

Adam Neyland rightly concluded that discounters will not go away. Largely privately owned so without shareholder pressure for fast returns, they have cash and big ambitions. Aldi is committed to opening a store a week until they have 1500 in total. It also recently won best supermarket award from Which?, the consumer organisation. Lidl is supporting consumer trends with the addition of Fairtrade products, and a commitment to sourcing British beef, chicken and pork.

Whether they will make a major breakthrough is questionable. Already some research by Him! shows the numbers shopping at discounters dropping from 15% to 13% of the population, which compares with 79% visiting a mainstream supermarket. And if you look at shares held by all discounters, it has not moved much from the days when Kwiksave was operating. Indeed Edward Garner of TNS has consistently argued that the growth seen in discounters is merely a mopping up of market share held by the now defunct Kwiksave.

The future for discounters is likely to be one where the total sector will hold its market share, and within that there will be winners and losers with Aldi consolidating its position as the main player.

Dairy Products Market 2008

Here’s a look at the Dairy Products market in 2008, courtesy of the Grocer. All data is for the 12 months to end October, and supplied by Nielsen market research.

It was a year when huge jumps in food prices collided with credit-crunched consumers reining in spending. Unsurprisingly there were changes in how people shopped for dairy products, but not perhaps as many as might be imagined.

Consumers bought roughly the same volume of products, despite dairy price inflation of 13.4%. There was some trading down to own label, notably in the butters and spreads sector, but by and large the big well advertised and promoted brands held on to their positions with the weaker ones struggling. There was a turning away from products sold as functional or fortified, with the exception of Danone Activia with its promise of a revved up digestive system. And Organic slipped back but is not yet in freefall.

Butters and Spreads
Total value sales were up by 17% to £1.1bn, with own label growing almost twice as fast, up 31%
Total volume sales were down by 1.1%, but own label grew by 4.3%.
A couple of grocery trade spokespeople commented that spreadable butters are growing fast because they combine convenience with a natural and healthy product. By contrast fortified spreads are losing sales because consumers are confused about why they should buy them, and they are more expensive.
Perhaps echoing the natural message, Lurpak butter is the number one brand for the second year running, beating Flora.
This is a sector where organic is struggling with Yeo Valley’s value sales up by only 6% in a market where inflation was 13%, meaning that volume sales must have been well down.

Cheese
Total value sales grew by 11.5% to £2.2bn. Own label grew slightly faster, up 11.8%
Its good to see that Cathedral City, is still the biggest brand in the market, owned by Dairy Crest, and British of course.

And a cheer for Wyke Farms which grew by 30% and is now the eighth biggest cheese brand. Here’s hoping that it is making money, and continues to show that it is possible to compete with multinational companies.

Yogurts
Total value sales were up by 7.7% to £1.9bn, and volumes grew by 1%. This is one category where own label is not growing as fast as branded products.
According to the Waitrose buyer consumers are flocking to Natural and Greek yogurts because they are seen as healthier.
Organic yogurt Rachel’s Dairy bucked the organic downturn and grew by 14%, but Yeo Valley clocked up a 1% growth.

Yogurt Drinks
This market is struggling. Value sales despite inflation were down 2.6%, and volume sales down by 8.3%.
The buyer for Booth’s supermarkets reckons that this is a market where consumers are cutting back because of price.

Fresh Milk (Additional data from DairyCo)
The total fresh milk market grew by 14.1% in value to £3.2bn, and 0.6% in volume. People are still purchasing as much fresh milk as they ever did.
Filtered milk, led by Cravendale continued to grow, up by 29%, but the modified milk market is fast disappearing, down by 35%, and is another example of consumers resisting a natural product which has been tampered with.
The Organic milk market was stable and Yeo Valley grew by 46%. There is anecdotal evidence that mothers like to buy organic milk for young children, even though it costs more than standard.
Wiseman’s “The One” milk did well growing by 48%.

NB

The one thing to bear in mind when looking at these numbers is that they are for the 12 months ending October 2008, about when recession truly started to bite. A look at data for the last quarter of 2008 may show some differences.