Jon Munnery: Is it the prime time for discounters?
Nearly a quarter of the UK grocery market is made up of discount retailers, such as German discount chains, Aldi and Lidl. Fast growing, discounters are taking up more real estate as consumer demand increases and shoppers turn to cheaper alternatives. As economic conditions toughen, more customers want their money to go further which is the core offering of discounters.
According to global market researchers, Mintel, shoppers were expected to spend £32.4 billion in 2022 with discounters, an annual increase of 6.6%. This is on a steady rise as consumer appetite for cheaper options, such as Aldi and Lidl, increases as they cope with the cost of living crisis, inflation, interest rates, post-Brexit and Covid-19 uncertainty.
Aldi took over fourth place in the grocery store ranking from Morrisons for the first time, according to Kantar’s research on grocery market share in Great Britain between 2017 and 2022. This shows that discount grocers are gradually overtaking the original big four that ruled the market over a decade ago; Tesco, Sainsbury’s, Asda and Morrisons. As shopper behaviour shifts, so do the perception of shopping at a discounter.
Change in perception
It’s no longer unheard of to shop at a discount store as they dominate local shopping districts. Mintel research shows that 95% of all shoppers say they now shop at a discounter, to some degree. The perception of shopping at a discount store has dramatically changed, making price-conscious shopping the smarter way to shop.
The Journal of Retailing and Consumer Services refers to four possible causes for low prices in discount stores which include positive claims, and common misconceptions:
- Inferior product quality – More reputable brands and luxurious products are on offer at grocery discounters, so the concerns historically associated with a discounter are likely invalid. Discounters’ labels are also famed – Aldi stocks 90% of its own private labels.
- Exploitation of suppliers and employees – Colleagues at the discount supermarket, Lidl, are known to receive the highest pay in the industry.
- Tricks in price communication – Traditional supermarkets have upped the competition with the launch of price match campaigns against their discount counterparts to provide more pricing transparency.
- Efficiency of the business model – Aldi is unapologetic in its approach to efficiency which makes it possible for them to charge for goods at a lower price point. The shopping experience is stripped down to simply cartons on shelves, which means no unboxing for shopping assistants, and substantially reduced variety.
The rivalry between non-discount grocers and discount grocers is evident as competitors strive to narrow the price gap.
Economic conditions
Discounters experienced a lull in trade during the coronavirus pandemic due to a lack of online presence, although financial uncertainty from the pandemic and the cost of living crisis meant that cheaper goods were soon in greater demand.
According to data from IGD, price is the key driver for more than 8 in 10 discount shoppers.
National expansion
The discount grocery market is expected to multiply by 23.9% over the next five years, according to IGD data, which is the fastest and largest growth of any grocery channel. This equates to £7.1 billion in additional sales between 2022 and 2027.
According to Savills, both operators, Lidl and Aldi expect to open 50 stores each by 2025 as they set to continue on the road to national growth. Both brands have a rich acquisition history, despite the backdrop of rising inflation and smaller consumer pockets.
The economic climate is tense as inflation adds the pounds to shopping baskets. More households are under pressure to juggle energy bills, stock up on food cupboards and maintain their typical standards of living under the backdrop of a recession. As such, the time is ripe for shoppers to exercise price-conscious shopping and shop responsibly.
Jon Munnery is an insolvency and restructuring expert at UK Liquidators, a provider of company liquidation services to businesses looking to close. He specialises in all types of company liquidations, including solvent liquidations and insolvent liquidations.