07 Mar 2008


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Will UK discounters come of age in 2008?

Discounters

Aldi

Lidl

Netto

Germany

Verdict Research

Consultant editor Fiona Briggs considers the rise of discount retailers in the UK grocery market

I'm going to make a prediction.

The leading discounters, Aldi, Lidl and Netto, will significantly expand their market share in the UK this year.

Their so-called no frills retailing will thrill UK consumers and their low prices, own label and branded mix, plus an increasingly 'upmarket' image will entice new shoppers into their fold.

It's very easy to see why and how.

A new report on the German retail market released today by Verdict Research shows discounters are on course to account for half of all grocery spend in Germany – that's phenomenal.

Elsewhere, in mainland Europe, the discounters are pushing their market shares above 30%.

Even in France, where the discount share is only just in double digits, mainstream grocers like Auchan have responded to the discount threat by introducing discount-style shop-in-shop areas in store.

Of course, the fact discounters were launched in Germany and other European markets, well before their arrival in the UK, has helped established their appeal.

However, the tougher economic climate in Germany, with high levels of unemployment and low consumer confidence, has certainly been a driving factor in discount growth in recent years.

Sound familiar? With all the recent talk of high food price inflation, the credit crunch and increased costs of borrowing, the UK economy appears to be taking a similar turn.

And, as a result, it is expected that UK consumers will start to tighten their belts.

Nielsen's Mike Watkins has suggested that in such a worsening economic climate, consumers will look to make savings and the grocery shop is where they will find them.

In particular, consumers will move away from premium lines to better value products.

That will be music to the ears of the discounters.

They shout about better value. Just visit the home pages of Aldi, Lidl or Netto.

They are all about low prices, savings, offers and being cheaper.

However, they also claim to offer quality at the best prices and it's that message, which will drive UK shoppers to their doors.

Market leader Aldi has been canny. As Verdict Research points out, it only offers own label so the consumer has no way of comparing prices.

It's probably been at the forefront of promoting a more upmarket image too – it was a winner in our own Quality Food Awards last year – so it is certainly getting some things very right indeed.

Lidl and Netto, meanwhile, both offer top brands so will be a draw for shoppers keen to make savings on family favourites.

To date, the discounters have been held back from lack of store space – it's no coincidence all three feature their property requirements online.

They may pick up stores from the sale of the Somerfield estate but will be also intent on driving extra traffic to existing sites.

Should the big four be worried? Yes, I think they should. The discounters are poised to take market share.

Tesco has already introduced a so-called no frills offer to compete. Asda, unsuccessfully, trialed a discount format, Essentials. Arguably, it was ahead of its time.

I've often heard it said the car parks of the discounters are filled with BMWs and Mercs.

Soon they will be filled with Ford Mondeos and Vauxhall Corsas.

The smart money is definitely on so-called smart shopping.

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