Discounters face challenges in UK

27 July 2009

LONDON: Hard discounters such as Aldi, Lidl and Netto have made substantial progress in the UK grocery sector as a result of the economic downturn, but this group of retailers still face major obstacles if they are to succeed in the long-term, according to new research.

A study by Him!, the retail consultancy, found that heavy discounters currently hold a 6% share of the British grocery market, a total which has not improved dramatically despite the onset of the financial crisis.

It also reported that 20% of shoppers in the country have visited such stores for the first time within the last 12 months, but predicted maintaining this momentum will be difficult.

This is partly because the "strength of the major grocers in the UK is far too strong for them to gain a 30% to 40%" share of the category, according to Tom Fender, sales and marketing director at Him!

In evidence of this, the UK's biggest supermarkets have been "going for the jugular" by introducing value ranges, offering more promotions and running high-profile marketing campaigns in support of low prices.

Similarly, Aldi and Lidl's policy of selling the same products in each of their stores across Europe could limit their overall penetration rate in Britain, which currently stands at 13%.

This is because UK consumers typically prefer buying familiar brands, whereas a company such as Aldi stocks few well-known products.

Moreover, as discounters typically "work on reduced man hours [and] reduced costs", adding "bells and whistles" could mean "the model soon goes," Fender said.

Indeed, Him! discovered that 76% of shoppers buy goods from these chains solely because of price, whereas only 20% did so for reasons related to quality.

Furthermore, the average number of purchases made by consumers visiting these chains is relatively small, reaching just 9.7 items in Aldi, 8.8 in Netto, and 8.3 in Lidl.

"Taking on the supermarkets will be a struggle unless they can get consumers more aware of the quality," Fender said. "They need to find new ways to get people into the stores and to take the products to the people."

Data sourced from Retail Bulletin; additional content by WARC staff