John Giles is a market research consultant and the divisional director at Promar International, a UK-based agricultural consultancy company
Until about 2007/08, the general view was that the hard discount stores from Germany were “not for the UK”, given our more sophisticated approach to retailing and shopping experience.
It would never catch on in the UK, we thought. We were quite happy to pay for the piped music, extended product range, car parks and added extras of buying our food in out of town superstores. How that has changed.
Take the news from last week: that upmarket grocery chain Waitrose has been eclipsed by Aldi as the UK's sixth-biggest grocer. This would have been almost unthinkable just five years ago.
And it’s not just Waitrose that has felt the heat of the German discount model: Tesco, Sainsbury’s, Morrisons and Asda – the so-called “Big Four” UK grocers – all saw their sales decline in recent weeks. Asda recorded the biggest decline, with its sales down 1.7% year-on-year. At the same time, Aldi and Lidl continued to grow their business in the UK, with Aldi’s sales rising by an impressive 17.9% year-on-year, while Lidl saw a 10.8% gain.
It seems that in fact we quite like the “no frills” shopping concept. In fact, we seem to like it a lot!
The plans of the German discount giants do not appear to stop at capturing increased market share in the UK. Long term, Aldi has stated its intention to continue expanding, not only in the UK but also in the US, as well as in other attractive markets, such as China and Russia, as well as New Zealand. Lidl is sizing up opportunities in markets such as the US, Turkey and Russia too.
Aldi already operates stores in almost 20 countries – most of which are based in the EU – and plans to open at least 50 more stores in the UK in the next 12 months. Germany is still the core market for Aldi, however, and accounts for about 50% of the retailer’s turnover. Lidl is in a similar situation. It operates mainly in the EU, and is especially strong in Eastern Europe, but Germany still accounts for just over 50% of Lidl’s overall sales.
Having struggled to make a significant impact in the UK for much of the last 15-20 years, the discounters have now firmly established a rapidly growing foothold in the UK market. They have also exerted considerable influence on how others in the retail supply chain operate and respond to the current market and economic climate. The real test for them was always going to be when the UK market finally comes out of recession.
However, it looks as though the recession of the last few years (and the appeal of the discount price model) does not fully explain the success of Aldi and Lidl, as was first thought. It seems they have a much wider appeal and this includes some great products of genuine quality. The low prices still are still attractive, of course. The main question now is: will the attraction of the discount retailers endure both in the UK and increasingly in international markets, away from Germany and the rest of continental Europe?
While the growth of the discounters might still be relatively new to the UK, the rest of Europe regards it almost as the normal way to shop. With other new markets on the horizon too, it looks as if the rest of the world will be feeling the impact of their business models as well before too long.
John Giles is a keynote speaker at the London Produce Show and Conference 2015, where he will look at three emerging markets – Ethiopia, Vietnam and Uruguay – and assess how supply chain and supplier/buyer partnerships can help the flow of fresh produce through the supply chain and to the end consumer.