Europe Dines on Discount Food, Threatening Big Brands

01 October 2008

LONDON: Supermarkets' store brands accounted for 22% of sales in Europe last year, while "hard discount" chains also took a 10.5% share of European distribution in 2007. Such trends threaten to "fundamentally change the retail landscape" by raising consumer expectations of low prices, warns Investec analyst Martin Deboo.

Jean-Charles Naouri, chairman of French retail chain Groupe Casino, similarly argues that "hard discounting" is a growing phenomenon in all European countries "where the consumer is educated and people are price-sensitive".

UK market leader Tesco introduced some 350 cheaper own-brand products in the UK in September as it attempted to compete on price, its commercial director Richard Brasher declaring: "If there is a war, we will win it." 

Casino and Carrefour have also launched their own cut-price offerings in France, with the latter's chief executive Jose Luis Duran saying the company had seen "severe" declines in sales of major brands, while "home-brand labels continued very well".

Similarly, while the "hard discount" chain Aldi posted a 21% rise in sales in the UK for the four months to September, Marks & Spencer – which focuses on premium foods – posted a 0.5% decline in its latest sales figures. 

Aldi is planning to open 1,100 stores in Europe in the next five years, while Casino has been expanding its Leader Price discount chain, which has increased its share of the French grocery market from 10% to 15% in five years, according to Investec.

Observers believe this trend could be highly detrimental to the likes of Procter & Gamble and Unilever, citing Aldi where over 90% of stocked products are not big-name brands; and Leader Price which sells no major brands.

Own-store brands took 16% of the US market last year according to Euromonitor International, while Planet Retail reports that hard discount chains took 1.6% of distribution.

Major chains like Wal-Mart have focused on driving down its costs for major brands, rather than expanding its range of house brands.

Data sourced from Wall Street Journal; additional content by WARC staff