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What next for discount shoppers?

Issue 4, April 2014

Date: 07/04/2014 Comments: 0
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photo: IGD

Rob Carpenter, Shopper Insight Manager at IGD looks at what is driving the growth with food discounters, how shopping habits are changing and what this may mean for the food and consumer goods industry in the future.

More than half of all British grocery shoppers visited an Aldi or Lidl store in January this year. Much of this growth has been led by shoppers using food discounters as part of a repertoire of stores, as part of the wider multichannel shopping trend. The most notable change, however, is the step-change in shoppers using a discounter as their main store, more than doubling from 5% in January 2012 to 12% today.

Source: IGD ShopperVista, January 2014

Future growth

Growth is set to continue as more shoppers use discounters and existing shoppers increase their discounter spend. The discount channel is forecast to grow by 96% over the next five years, compared to 8.2% growth for superstores and hypermarkets. Although coming from a considerably small base, this growth equates to a cash gain  of £9.1bn, greater than the £6bn gain that is forecast for superstores and hypermarkets.

Growth forecasts

Source: IGD Retail Analysis UK Channel Forecasts 2013-18

What is driving this growth?

The step-change in shoppers using a discounter as their main grocery shop is testament to shifting shopper attitude. Discounters have worked hard to expand their ranges and this has resulted in a greater appeal for shoppers to conduct their main grocery shop there.
This has coincided with the shopper trend to conduct more frequent, smaller shopping trips rather than one main one, which requires a much greater range under one roof.
Another key driver to discounter growth over the last 12 months has been the price of the goods offered, or more specifically, the value of their offer. As the in-store environment and perception of product quality has improved, the low price offering has remained the same. Therefore the ‘value’ provided by discounters has improved and this has been recognised by shoppers.

Source: IGD ShopperVista Discounters Channel Focus, June 2013

The future: blurring lines between channels

Differentiators between channels have blurred and continue to do so. Price activity from the major multiples seeks to minimise the price differential with discounters on staple household items. The emergence of discount formats within the convenience channel as well as smaller sized high street stores in the discount channel is highlighting how the two are slowly merging. At the same time, retail environments are improving and evolving across channels. Discounters and convenience stores are concentrating on creating more appealing in-store environments, while superstores and hypermarkets are segmenting space and developing ‘services’ to create more appealing retail destinations.
Range expansion from discounters
Looking outside of the UK provides further signs as to how the discounter market may develop. The shift in strategy from Lidl in France shows one route that discounters may take to achieve further growth. Rather than new store openings, the focus for Lidl France is to expand store size within its existing 1,500 store network from 800 sq m to 1,200 sq  m. In the past, Lidl has opened 80 to 100 stores per year in France but this seems likely to reduce considering the shift in focus.
Bigger stores will allow Lidl to offer different ranges which will focus on new regional products and extending its range on national brands in a bid to attract new customers. Lidl will also enhance its fresh credentials, adding in-store bakeries across the country.
UK food discount shoppers indicate such a move would be welcomed here and would help fuel a greater level of interest in the channel for the current non-discounter shopper base. Almost two thirds (64%) of food discount shoppers say they would use discounters more if they could get more products and use more convenient services there.

Source: IGD ShopperVista Discounters Channel Focus Jan 2014

Elsewhere in Europe we have seen a trend in Germany for opening smaller sized discount stores as convenience is targeted as an avenue for growth. With evidence of the first tentative steps in this direction for discounters in Britain, that may be a likely next step that they will explore. What will be interesting is to see if discounters expand in both directions; larger format stores providing increased range and choice for shoppers and convenience stores catering to the smaller frequent mission trend.

As discounters increase their quality perceptions and the major multiples highlight their low prices above the line, we will continue to see differences between the superstore and discounter channel blurring.

As the ‘price to value’ equation is balanced in the shoppers mind, we may see the real battleground is won and lost on secondary elements such as range and the in-store experience. Will the macro trend of more frequent grocery trips mean shoppers are more willing to sacrifice choice and experience for price saving, providing discounters with an advantage? Or will the anticipated recovery of the UK economy filter down to shoppers and lead to a greater emphasis on quality, choice and the in-store experience, playing into the hands of the major multiples?

To win, retailers and manufacturers must effectively communicate a proposition that resonates with shoppers during a period of evolving perceptions. Perceptions will continue to evolve around retailers, channels, shoppers’ economic situation and towards what ‘value’ equates to. Whatever the evolution, we can be sure that shoppers will not simply revert to past behaviours and attitudes.  Many of the savvy tactics learnt and attitudes formed over the last few years will remain.  As such, the most successful companies will be those that strike the right balance between the most important factors in the value equation; quality, price and in-store or product experience.

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