A new report from market analyst Verdict, European Grocery Retailing 2007, has suggested that the aggressive expansion of hard discounters in Western Europe has begun to challenge the dominance of hypermarkets in the region.
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With a combined market share of 40% in their home market, privately owned German discounters Aldi and Lidl are now focusing their attention on international expansion, a move that Verdict Research has suggested may force retailers across Europe to rethink their business models.
Offering a combination of market leading prices, quality food, an efficient cost base and managerial savvy, discounters have gradually increased their market share in Western Europe, Verdict research analyst Daniel Lucht said.
“Aldi for example benefits from high brand recognition and has a strong reputation for high quality products at very low prices in Germany. Manufacturers have to endure rigorous checks before they start supplying discounters and consumer associations continuously rank Aldi’s private label provision ahead of branded goods from multinational manufacturers,” Lucht commented.
This competition is forcing hypermarkets to rethink their strategies. However, Lucht added: “Reviving the hypermarket format, developed according to market conditions 40 years ago, is proving difficult.”
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By GlobalDataAccording to Verdict, changes to the hypermarket trading model include the development of a multi-channel strategy, implementing cost reduction programmes, improving supply chain management, increasing focus on non-food and focusing on online operations.
France’s Carrefour in particular has had to battle against the rise of discounters, Verdict said. Looking ahead, the research group suggested that within the next decade Carrefour’s European market leadership could come under threat. The UK group Tesco, Europe’s second largest retailer with European sales currently standing at about 80% of Carrefour’s turnover, could overtake the French giant within the next ten years.
To remain competitive, Verdict said European retailers needed to focus on three fronts: the adoption of a customer-centric multi-format approach; the adoption of green retailing practices; and smaller retailers must gain scale through buying alliances.
