The rise of the discounters has been one of the year’s key trends in grocery retailing. Shoppers, beset by concerns over the economy, have looked to the likes of Aldi and Lidl for greater value. In this month’s just the answer interview, Daniel Lucht, senior analyst at retail watchers Verdict Research, tells Dean Best why the discounters should push on in 2009, despite growing competition on price from the likes of Tesco and Carrefour.

just-food: What makes the UK and France a “golden opportunity” for discount retailers?

Daniel Lucht: The onset of global recession is obviously playing into their hands. In the UK, there has been a change in consumer shopping behaviour. Consumer spending is being squeezed at the moment. There have been a lot of issues from the collapse of the housing market to the credit crunch and so and so forth. Discounters have been quite good at repositioning their offers; they’ve moved into more premium, high-quality stuff and they’ve opened more stores. They’ve created a story about themselves. The “Aldi effect” is really prominent in the media.

In France, the main issue has been purchasing power over the last year. According to French national stats, the French are paying too much. A lot of people are also quoting the loi Galland but it’s also got to do with the hypermarkets’ pricing policies. Discounters have been doing alright in France. Now, because the loi Raffarin that regulates retail space is going to be liberalised to an extent, there’s a golden opportunity for the discounters.

j-f: Next year will be a challenging one for the discounters in the UK. The likes of Tesco and Sainsbury’s have been busy flagging their value credentials and the likes of Aldi and Lidl will have more of a fight on their hands, wouldn’t you say?

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Lucht: On the one hand, you are absolutely right. The threat has now been recognised and the players have started to do something against this. However, despite the Government’s best attempts, the economy is going to be tough next year and that really plays into the hands of the discounters – people will really watch their pennies. [If] they widen their store portfolios and network, they will drive more sales through the channel. If you look at other markets, other hypermarket operators – you could look at Carrefour, Ahold, Metro Group – have employed the same sort of tactics with their private-label provisions, their relaunches and so on and what we’ve found is that it hasn’t actually stopped the discounters.

j-f: Aldi seems to be positioning itself as a hard discounter, while Lidl looks to be a “soft” discounter, selling more FMCG brands in its stores. What are your views on the different strategies?

Lucht: Brands are doing really, really well for Lidl. It has introduced a lot of FMCG brands into its stores across the EU and it’s really helped its top-line sales figures. [However], there are a couple of problems with it. Your margins from a discounter’s perspective aren’t as good as on private-label products and also you add a lot of products into your stores. The [discount] model is built on simplicity and a tight, limited SKU range. If you add brands, you dilute that, you add costs and it’s a bit of a risk but what it’s done for them is made them grow really, really fast. Aldi’s strategy is different. It looks like it is staying with its tried and tested model, so it’s just focusing on private-label products. The margins are a lot healthier, it’s growing slower but, in Germany at least, it’s making a lot more money than Lidl is with brands. We’re talking millions here.

j-f: The growth of Netto in the UK has so far lagged behind Aldi and Lidl – why do you think that is?

Lucht: There is a definite opportunity for Netto in the UK [but] my personal view is that Netto should have moved their offer a lot more upward like Lidl and Aldi have done. They haven’t really done that and Lidl and Aldi are really cashing on this now – they’re getting a lot more middle-class shoppers – and Netto has stayed very much focused on price. I think that’s hurting them a bit at the moment.

j-f: How far is the rise of the discounters just a cyclical phenomenon?

Lucht: The economy definitely helps them at the moment. However, what we’ve known from other markets is that it is a winning format. They are also benefiting from convenience trends quite often, especially when they are in the inner cities. They are here to stay but, when the economy picks up, their growth rates won’t be as fast, that’s for sure.

j-f: Outside of the UK and France, where does Verdict see the best opportunities for discount retailers in Europe over the next year?

Lucht: They’ll be doing okay in most markets just because of the economic backdrop but you have to take into account that in Germany they are about 43% of sales so growth there is not going to be that explosive. The same holds true for the Benelux, Austria and Scandinavia. [Aldi and Lidl] are by far not that developed there but the channel already takes a huge chunk of sales. So, where they are under-developed – Ireland, Spain, to a degree as well, because they have been really impacted by the crashing housing market there. Eastern Europe depends on how far the country has developed. What you have to take into account as well is that Aldi usually follows the hypermarkets [into Eastern Europe]. Once they’ve been set up, [Aldi] follows them in.