This is a question being addressed with some trepidation in the boardrooms of traditional supermarkets, their anxiety heightened by the news that Aldi and Lidl combined have now reached a 10% share of the Uk grocery market. What is particularly scary is that it took 9 years for Aldi and Lidl to get from 2.5% share to 5%, but only three to double again to the current 10%.
At the moment they
seem unstoppable.
For starters they are building more stores at a time when
all other supermarkets are contracting. Aldi and Lidl between them have plans
to open 171 new outlets, compared with 29 for the Big 4, and Lidl has stated
that it wants to more than double its number of stores, from 629 now to 1500.
Aldi is aiming for 1000.
And , a factor that is not often commented on is that both companies
are privately owned and so, unlike the Big 4, (Tesco, Sainsbury, Asda and
Morrisons) are not constrained by shareholder demands for ever higher profits.
The discounters can invest as much as they want, be it in ever lower prices, or
store refurbishments, or colossal marketing campaigns, without wondering how the
City will react.
Their aggressive marketing seems to be working. According to
research company Kantar Worldpanel, Aldi and Lidl have added 1 million more
shoppers in the last year, and they have gone more up market, with the result
that 31% of their shoppers are now in the wealthier AB social group.
They have taken the upcoming Christmas season very seriously
with blanket advertising campaigns, and glossy brochures given away free in
Saturday and Sunday papers. A flip through the Aldi brochure reminds readers
that they can buy Canadian lobster, British free range goose, British RSPCA assured Bronze free range
turkey, British leg of lamb, and British Caramel and Bourbon ham joint.
Lidl reminds us that it won “Grocer of the Year”, then
points out its Marine Stewardship Council certified lobster, RSPCA assured
pork, British Bronze turkeys, organic and free range eggs.
How clever to acknowledge major consumer trends in this way –
British, welfare friendly, and a bit special.
Both companies pride themselves on their wine and spirits
expertise, and compete well with the big 4. Aldi in particular has recognised a
competitive opportunity by setting up an online wines and spirits arm, which,
some suggest will compete with thatt offered by Waitrose.
So far so rosy. What might stop the march of the
discounters?
Four factors could hinder growth
First, Aldi and Lidl might lose sight of what made them
great in the first place, namely rock bottom prices . This is what happened to
Morrisons who, in an effort to broaden appeal to more affluent shoppers, took
their eye off their core customers who could no longer find the good value to
which they were accustomed, and were turned off by gimmicks such as misted
vegetables and overly fancy foods. There are already signs that this could be
happening to Lidl who are refurbishing stores and changing their range of goods
to more closely resemble premium outlets.
Secondly, the big 4 might take decisive action on becoming
price competitive, as opposed to tinkering around the edges, which is the case
at the moment. Asda for example say that they have reduced the price gap
between themselves and the discounters to 10%, and are aiming for a 5% gap.
They say that 4 years ago the gap was 20%. Of course this assumes that the
discounters would not reduce prices still further, leading to a zero sum game.
Thirdly, discounters might lose out because they do not
offer online shopping, apart from the Aldi alcohol venture. Online growth is
predicted to continue, as retailers make their websites easier to use, particularly
on smartphones and tablets, and more convenient with initiatives like click and
collect.
Fourthly, many shoppers feel that they cannot get everything they want from the limited
range offered by discounters which means having to shop twice. There may be
some who find this too inconvenient to bother with the discounters.
Where might it end? Growth rates are slowing from the heady
levels of a year ago, but still run at around 16%. The general consensus among
industry watchers is that Aldi and Lidl will achieve a market share of around
15%, similar to that in Ireland, due mostly to store openings. Whether they get
much beyond that is debatable. In Germany,
discounters have a 37% share, but the trade structure is different to the UK with fewer traditional supermarkets, but Source: BPEX).
even here there are signs that growth is
levelling off. In France, which has a
grocery trade structure similar to the UK, the discounters got to around 14%
market share, but traditional supermarkets fought back and share in 2014 fell
to around 12%. (
One thing is not in doubt though – the discount grocers are
now a significant part of the British grocery scene, and will continue to be so
as long as they stick to what they are best at – low, low prices.
