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Brands should list with discounters

News, 26 March 2015

LONDON: As the UK supermarket sector tries to adapt to the challenge presented by discount stores, most especially from German retailers Aldi and Lidl, a new study has recommended that brands should embrace the trend.

Despite concerns that listing with a discounter might negatively impact a brand while simultaneously lowering a product's checkout price, Kantar Worldpanel said brands should not overlook this rapidly-expanding sector.

The consumer insights firm analysed the performance of over 350 branded products sold at Aldi and Lidl as well as the purchasing behaviour of 30,000 demographically representative households that took part in its grocery shopper panel.

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It concluded that concern about brand image is increasingly outdated because the two discounters have now become mainstream after almost doubling their market share to 8.3% since 2010. Both also plan to expand further.

More important than brand image, the report sought to establish whether listing with them would be "incremental" to sales. In other words, would sales rise without hitting revenue at discounted prices?

It found that for the majority of brands, listing with a discount retailer will increase their volume of sales. Furthermore, there is an even chance that a purchase of a specific brand at a discounter would not otherwise have been made at another retailer. This makes it "highly likely to add an incremental sale", the report said.

On the crucial issue of price, Kantar Worldpanel found that branded products sold at discounters are on average just 5% cheaper than at other stores.

However, as discounters very rarely sell products on promotion, the report said the average price of a brand sold at a discounter "could actually be higher than in other retailers".

"The key to making this listing a success is ensuring that it is done so at the right cost and that price isn't driven down too significantly over time," the report said.

"The only genuine risk of listing in a discounter is cannibalisation. That's why finding the right price point is essential," it added.

Data sourced from Kantar Worldpanel; additional content Warc staff