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April 30, 2008

US/UK: Economic slowdown benefits discounters

With the global economy teetering on recession, discount retailers in the US and UK are reaping the benefits of the economic downturn.

With the global economy teetering on recession, discount retailers in the US and UK are reaping the benefits of the economic downturn.

According to US market research group Willard Bishop, with inflation spiralling, American consumers are increasingly looking to discounters like Stop & Save and Aldi, and “extreme-value” operators, like Wal-Mart, to shave dollars off their grocery bills.

“We predict that food inflation will rise to 5%. It is going to get worse before it gets better. Shoppers are responding to this by turning to stores that help them manage a tighter food budget,” Willard Bishop’s Jon Hauptman told just-food.

Consumers are adjusting their spending behaviour with more becoming “smart shoppers”, Willard Bishop said.

“Price has become more important to a broader range of shoppers,” Willard Bishop researchers Hauptman and Jim Hertel warned. “With rising food prices, escalating energy and transportation costs, climbing unemployment, and the turmoil in the housing market, shoppers are managing their food budgets more closely. Becoming a “smart shopper” has become a necessity.”

According to Willard and Bishop, so-called “smart shoppers” exhibit a wide range of behaviours, including trading more expensive outlets for cheaper ones – shopping at supermarkets or discounters rather than eating out, substituting branded goods for private label, stocking up on sale items, searching for more value by coupon clipping and looking for low price-per-unit products.

Indeed, Eduardo Castro-Wright, chief executive of Wal-Mart’s US division, told analysts in New York yesterday (29 April) that the company’s emphasis on low prices is keeping lower-income customers loyal and attracting wealthier shoppers.

Wal-Mart said that shoppers with a household income of US$55,000 to $70,000, which it characterises as affluent, are turning to the value retailer in increasing numbers. According to US reports, company research has shown the number of more affluent shoppers increased 0.7% in February and was up 2.2% in March.

The trend towards value retailers has also been highlighted by research out today on the UK grocery market.

Research group AC Nielsen has revealed that as consumers tighten their belts in the face of economic uncertainty they are increasingly turning to discounters like Aldi, Netto and Lidl for their grocery shopping.

According to data from Nielsen, in the 12-weeks to 19 April combined sales for discounters grew ahead of the market at 13% year-on-year. Overall sales growth in the grocery sector stood at 5.9%.

Discounters now account for 5.5% of the total grocery sector in the UK, the research group said.

“We are seeing a volatile market, with consumer confidence, weather and food inflation impacting food sales at the moment,” Mike Watkins, senior manager for retailer services at Nielsen said.

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