You might think that discounter retail prices are so low
that suppliers’ profits from serving them are thin to the point of non
existent.
Not so. Yes it is true that Aldi and Lidl negotiate hard,
and a recent article in the Financial Times suggests that margins are of the
order of 5-10% lower than for traditional supermarkets. But the discount model
means that there are many upsides.
The keys are the limited range of products on offer and
selling at the same price every day. Aldi and Lidl stock around 3,000 lines
compared with a standard supermarket range of 40,000-50,000. This means that
suppliers can manufacture long runs of product instead of incurring cost by
stopping the line to change to another variant. Everyday low pricing means that
volumes are consistent and easier to forecast, as opposed to volatile and
unpredictable, which is the case when goods are sold on promotion. Because
there are few promotions there are few demands for add ons like promotional
support. And listing fees seem to be a rarity.
Aldi and Lidl tend to be loyal to their suppliers and the
narrow range and everyday price mean that suppliers need fewer people to manage
the account, and waste little time in meetings.
Discounters operate efficiently and this philosophy benefits
suppliers. No costly chopping and changing in manufacturing, no cash draining
peaks and troughs in volumes, no wild and expensive ideas about promotions, no
rug pulling at the last minute when an activity seems to have been agreed, and
minimum numbers of meetings – it all adds up to a financially beneficial
relationship.
Add to that the enormous growth potential that discounters
offer, and it becomes clear why suppliers find that dealing with the likes of
Aldi and Lidl a satisfactory experience.
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