Emily O’Neill recently visited the home of discounters, Germany. Here she brings you the top three trends in the channel, as operators look to attract new shoppers and reignite growth.

Germany is the heartland of discount retailing and one thing that strikes me is despite approaching saturation in their domestic market, discounters are continuing to look for new ways to drive growth. Multiple discounters operate successfully and it remains the most popular format in the country, accounting for 42% of total sales in the food and grocery market in 2012. However between 2008 and 2012 the channel lost market share as supermarkets and convenience operators enhanced their offers, improved their private label ranges and targeted new customers. Now the discounters are fighting back.

1. Greater focus on health & beauty

Drugstore operator Schlecker exited the German market in 2012, creating an opportunity for other retailers to attract new customers into these categories. Showing flexibility not always associated with the channel, I noticed that a striking change is taking place within the health & beauty categories of a number of discount operators. The most notable is in Netto Marken Discount where health & beauty has been significantly up-weighted. It now offers 1,000 SKUs, representing a significant proportion of its total offer. It is also dedicating more shelf-space and introducing clear ‘zoning’ to the category to aid shopper navigation of the fixture. This represents a considerable change of direction for Netto and the development is heavily communicated across the store as it seizes the opportunity provided by Schlecker’s exit.

Elsewhere in the channel, Lidl is listing an increasing number of premium health & beauty brands such as Nivea, Schwarzkopf and L’Oreal. Meanwhile Aldi, who has previously been expanding its range through private label has also just introduced multiple Nivea brands in both its Nord and Süd businesses as its health & beauty offer starts to take shape.

2. Using discounters to maximise brand exposure

Discounters have traditionally been the pinnacle of private label retailing. Therefore the role that brands can play within the channel is a hotly debated topic and within the German discount channel, the different operators are on contrasting brand journeys.

Aldi and Lidl have the highest proportion of private label, and have come from very different starting points in terms of brand penetration. In the past five years Lidl has progressively boosted its branded offer in many markets, including Germany. However it is now streamlining its range to stock leading brands within the category. Meanwhile Aldi has remained focused on a purely private label offer, listing only a limited number of brands. Although it is gradually increasing the number of brands it stocks, they still only account for a small proportion of Aldi’s total offer, with most categories consisting entirely of private label. Other discounters such as Penny and Netto Marken Discount rely heavily on branded manufacturers and list brands within most categories.

Notably the consistency that I observed across the channel is the increased interaction between discounters and manufacturers. Branded manufacturers are recognising the benefits of promoting their products where customers will see them and are using the discount channel to effectively leverage their leading brands. Across the full spectrum of discounters in Germany I saw a range of mechanics being used to maximise brand exposure, including dedicated fixtures, branded point-of-sale and free standing display units.

3. Enhancing the chilled offer

While keen to retain value positioning, quality is a key battleground within the discount channel. Finding innovative ways to communicate this underpins discounter strategy, as they look for new ways to reassure shoppers on quality, sourcing and freshness. Fresh categories provide a great opportunity to promote credentials in these areas and give shoppers more reasons to visit the store on a daily basis. I noticed a lot of this activity during my trip, particularly within the chilled categories.

Lidl is competing intensely within fresh, bolstering its strong offer by committing to use German manufacturers where possible – using  large, dedicated point-of-sale in store - helping Lidl build a unique proposition setting it apart from its discount rivals.

Other developments include Aldi Süd revamping its entire chilled area of the store, with enhanced merchandising above its fixtures. While at Penny, the whole category has been refreshed, with new branding in its private label range and strong communication on awards its products have received highlighted above the fixtures.

What next for discount?

While value and quality will remain the building blocks of the discounter proposition, they will increasingly be combined with local knowledge. Although they’re not making radical changes, discounters are fine tuning their offers to broaden their appeal and catering for a wider variety of shopper missions. We expect growth in the German discount channel to steadily increase - and match growth of the total grocery market over the next three years - as they continue to build on the positive momentum they have created this year.