Aldi, Lidl, Netto, Plus…hard discount retailers are extending their reach across Europe and beyond. While more and more players are getting in on the act, shoppers in some countries remain surprisingly resistant to the lure of low prices. Andrew Don explores the winners and losers of the EU discount retail sector.

Every week almost every family in Germany buys something from Aldi, the dominant hard discount player.

This could be considered bizarre for people living in the world’s third richest economy. Yet Mike Dawson, foreign news desk manager of food retailing newspaper Lebensmittel Zeitung, says hard discounters are a national phenomenon there and will continue to be so, he believes, for at least the next five years.

The country is the European powerhouse of hard discount stores. Economic troughs and peaks may come and go but the no-frills format has captured the nation’s hearts unlike anywhere else in Europe.

More than a third of the German €200bn (US$195.8bn) food market is hard discount and Dawson can imagine its share increasing to 40%-42% in the next five years.

Germany is the most price-oriented market in Europe, if not the world. Dawson says: “German consumers know more KVIs (known value items – everyday commodity items such as milk and sugar, the prices of which shoppers are familiar with) off by heart than any other consumers in the world.”

With much of Europe clamping down on greenfield development and hypermarkets, the likes of Aldi, Lidl, Norma, Penny Markt, Netto, Dia, Plus, Colruyt and Denner have planning regimes on-side.

A limited range of 600-800 products in Aldi’s case, or 1,200 items in Netto’s, requires minimal space, giving them far more opening options than middle-market rivals.

European Grocery Retailing 2002 from the UK’s IGD (the retail think tank formerly known as the Institute of Grocery Distribution) says the €28.4bn turnover Aldi has 3,250 outlets at home and 2,554 internationally. M&M Planet Retail estimates the company will be turning over €36.7bn by the end of this year.

“Germany is the most price-oriented market in Europe”

Germans fighting it out abroad

Outside Germany Aldi isn’t as dominant. Lidl has supplanted it as France’s leading hard discounter and likewise in the UK. Since 1998, Lidl has opened 320 stores in Spain. Aldi has 13 there. M&M Planet Retail says the Spanish market, where Aldi entered this year for the first time, is already highly mature in terms of hard discounting but Aldi sees good prospects there.

France is Aldi’s second biggest market in Europe with about 383 shops, followed closely by the Netherlands with 358. Provincial towns in France have provided a gap for limited line discounters because they cannot support hypermarkets and often only have a small local store.

Dawson said: “Hard discounting is a very German thing with a specific historical context and it appeals to the German mind with ugly stores, food out of cardboard boxes, very efficient but no service.”

UK slow to warm to discounters

“France looks for more colour and Britain has moved down a different road with people expecting more in terms of quality, flair and ingredients which is why supermarkets make a lot more money than in Germany.”

Carrefour of France, which has about 460 discount stores at home and 3,300 overseas including the Ed and Dia formats, failed with its Ed discount operation when it entered the UK in 1993 and sold out the British stores to Danish rival Netto which was playing catch-up. Dia is growing fast in Iberia and Greece.

Dansk’s Netto broke into the German and UK markets in 1990 and followed with Poland five years later. With 228 stores in the UK, it trails Lidl on about 320 stores and Aldi, 263.

Dansk’s Netto in danger of being left behind

“Britain expects more in terms of quality, flair and ingredients “

Netto opened its first store in Sweden in May through a joint venture with Ahold-ICA to operate discount stores there. This has now been expanded to about ten outlets. M&M Planet Retail says the aim is to develop a network of Netto discount stores across Sweden and Norway. IGD says the joint venture shows that Dansk recognises the need to have extra resources to expand further.

IGD warns that the level of competition in Germany, the UK and Poland is high enough for Dansk to be at risk of being increasingly marginalised by the other leading players, especially Aldi and Lidl in Germany and the UK.

Aldi biding its time while Lidl and others forge ahead

Aldi has not entered the emerging European markets with a hard discount format to date. IGD says Aldi is most likely waiting for the retail infrastructure to be sufficiently developed before doing so. But a market such as Poland looks a likely candidate for entry by 2005, it says.

The €15bn turnover Lidl is wasting no time. There are several countries where it has just started operations, or is in the process of setting up offices and recruiting staff, such as Scandinavia, the Baltic States, Poland, Hungary, Croatia and Slovenia.

Tengelmann, the €26.7bn turnover company, aims to have 100 Plus discount stores in Portugal by 2005 and 300 in Spain by 2002.

Dia plans to invest about €1.2bn over the next five years to open more than 2,000 new outlets, 400 of them franchised stores.

“Belgium is pretty mature but in Italy the market is mostly underdeveloped”

German market mature, scope for growth elsewhere

Richard Perks, senior retail analyst at London-based research company Mintel Retail Intelligence, thinks the German market is “largely mature”. He sees most scope for expansion in France and Eastern Europe.

Perks forecasts slow, but steady expansion of the discount sector in the UK. “Belgium is pretty mature but in Italy the market is mostly underdeveloped.”

Richard Hyman, chairman of Verdict, says established middle market players have tried to make it difficult for the hard discounters by introducing their own price-competitive ranges.

Price advantages offered by limited line discounters are not what they once were because mainstream players have narrowed the game by introducing sub-brands that have proved an attractive alternative to enough people to put a bit of a brake on growth.

But there is a long-term role for hard discounters because there is a segment of the population across Europe shopping on a budget and for them price is the single most important thing, he says.

 M&M Planet Retail says discounters in Germany account for 32.2% of the grocery market as measured by sales, France 4.9%, the UK 4.7%, Italy 2.2%, Spain 6.1% and The Netherlands 6.7%.

Expert Analysis

Discount Retailing (2001)

This essential report provides a thorough review of the market and includes data from 1996-2005. Consumer issues are examined, and company profiles included.


Aldi the most efficient

It says Aldi is more efficient than its competitors with €8,187 in sales per sq m of floor space in Germany in 2001. Lidl makes about half that with €4,181, Penny Markt €4328 and Netto €4,070.

Now in the post 11 September downturn and with the threat of war with Iraq, the environment is right for further proliferation of hard discounters throughout Europe. Whether they enjoy continued success will depend on whether conventional supermarkets can beat them at their own game on KVIs.