Since the onset of the downturn, German discounters Aldi and Lidl have, for the most part, been able to grow sales ahead of the UK’s four largest grocery retailers. Andrew Don investigates whether they can maintain momentum after the country’s now double-dip recession.
Kantar Worldpanel’s latest UK grocery share figures for the 12 weeks ending 15 April show the German limited line discounters Aldi and Lidl have continued their strong run, achieving record shares of 2.7% and 2.8% respectively when the market share of all but Waitrose and Iceland Foods held steady or declined year-on-year.
The sales growth rate of Aldi, which has 446 shops, soared 27.9%, continuing a trend that has seen growth in the 20%-plus range since July 2011. Indeed, looking at longer-term trends, it is clear that Aldi has largely enjoyed a growth rate that exceeded the combined total of the big four for at least a year before the credit crunch began in August 2007.
Since the onset of the downturn, Lidl has also enjoyed a similar pattern of growth and the no-frills grocer booked impressive sales expansion in the latest period under review, with revenues rising a not-too-shoddy 11.1% in the period to 15 April.
Edward Garner, Kantar Worldpanel director, attributes much of both discounters’ growth over the past six years to space expansion and Asda’s axing of the Netto brand. Garner says Aldi’s spectacular recent sales growth had also come at the expense of Tesco, Morrisons and Asda, whereas Lidl had relied more on the loss of Netto.
“We are finding people are shopping in two places and they are giving more of the shared money to Aldi,” he observes. This included a duplication between Waitrose and Aldi, although “less than you would expect”, he adds, and there was also a bit of an overlap between Waitrose and Lidl.
However, since the onset of the credit crunch there have been notable periods when the discounters slipped below the big four in terms of sales growth. Two significant dips can be noted from November 2009 to April 2010 and August 2010 to November 2011.
Garner attributes these down periods to the return of “a degree of balance” to the market, when people got fed up with buying cheap food and traded up.
This suggests that, when consumer sentiment turns positive, the discounters could have difficulty attracting new shoppers and retaining the ones they have won over, Garner suggests.
Garner predicts the discounters’ growth rates will converge more with the big four when the economy recovers. “The balance between the advantage of price and the disadvantage of the low selection and shopping environment will tilt slightly,” he claims.
Jon Copestake, retail analyst at the Economist Intelligent Unit, says the discounters’ best chance of maintaining momentum is on the back of the repositioning they had achieved through marketing campaigns that focused on good quality produce at low prices.
Quality becomes more important than price when incomes recover. For the polarised two-store shop to continue the discounters need to convince shoppers quality was not compromised when buying from them, Copestake suggests.
However, he adds the real question for the discounters will be how deeply ingraned new shopping habits become for consumers.
“Much depends on whether the emerging austerity among consumers is transitory, or whether it marks a sea change in shopping habits. A lot depends on whether the downturn will make consumers more cost conscious generally or whether rising incomes will result in a switch back to old habits,” he concludes.
On these changing shopping habits Sue Benson, managing director of retail marketing agency The Market Creative, suggests that the discounters’ momentum will be maintained post-recession because the “stigma” of shopping in them has gone and they have successfully addressed the question of quality.
“They now reach a much wider audience and given their growth in store numbers and subsequent geographical reach, this is likely to continue… Their offering is often perceived to be just as good, and sometimes better, than their higher priced counterparts,” Benson says.
She believes “valuenomics” is here to stay because the net effect of the prolonged recession was that consumers now questioned value [price and quality] more often than they used to.
“As long as Aldi and Lidl continue to deliver against these criteria they will still have a role to play, continuing to prosper when the good times roll.”
Ekaterina Winkelmann, senior retail analyst at IGD, adds the hard discounters were well-placed to build on their current momentum because they are working to evolve their offer.
“Both discounters are experimenting with different approaches in their newer stores, including wider ranges of fresh products and stronger organic, sustainable and local credentials. The traditionally rigid discount model is gradually evolving to engage with shoppers and attract more spending.”
For their part, the discounters themselves appear confident in their ability to drive continued growth when the economic outlook improves.
Looking to the future, Tony Baines, managing director of buying at Aldi, says the company expects to drive continued growth through store openings and growing customer loyalty.
The number of stores will continue to grow significantly and customer loyalty would “continue to support the success of Aldi in the UK in the future”, he insists.
Likewise, a Lidl spokesperson says there had been a “tremendous increase” in shoppers at its stores, comprising of both loyal shoppers and new customers. “We expect that momentum to continue into recovery,” the spokesperson emphasises.