The term discount isn’t what it used to be, particularly in the grocery aisle. In fact, savvy discounters have been able to build on the momentum they established due to the slow economy and create an attractive proposition that exemplifies value and quality.

Quickly growing into a sizable force here in the UK, the discount grocery market is a fertile opportunity for discounters hungry to do business and adapt to shopper needs. At the end of 2012, Aldi and Lidl, the chains with a dominant foothold in the space, had a combined 7.7% share of the UK fmcg market. Given recent growth, they appear poised to push that level to 10% by 2015.

Before the Great Recession of 2008-2009, discounters struggled to wow the British shopper. As the economy worsened and shoppers found their way to Aldi and Lidl to save money on their weekly food bills, they were pleasantly surprised to find that these retailers offered quality food at discount prices.

Now, as current trends suggest economic growth will be slow for the next three years, shoppers have got used to living on less. This will favour the limited-range discounter business model of 10,000 sq ft stores with approximately 1,000 SKUs.

“The winners in the discount space will be those that innovate”

Aldi and Lidl have also adapted to the UK market by opening stores in more affluent locations and offering new options, like fresh and chilled. And they’ve embraced the premise of communicating about quality and value.

This strategy has been largely successful. In the last five years, the two retailers have increased their household penetration from 36% to 45% and spend per visit from £15 to £19 [Source: Nielsen Q4 2007 vs Q4 2012].

What’s more, shoppers are finding that Aldi and Lidl meet more than just their basic grocery needs. In response, they’re buying more items, which contributed to 28% growth in the two companies’ 2012 fmcg sales, far more than they would have garnered from new stores alone.

Currently, these discounters pull in most of their sales from their own labels, which may have lower price tags than comparable products at many supermarkets. They also hold regular promotional events and special one-off deals, which attract sales from consumers who aren’t opposed to shopping around.

But discounters aren’t relying on their promotions to secure long-term and consistent results. Recent trends suggest discounters are appealing to the everyday needs of shoppers by offering value on everyday essentials and by being conveniently located.

Together, Aldi and Lidl have created an established trade channel in the UK, and highlight strategies for success in a low-growth environment. Long term, the winners in the discount space will be those that innovate and take share from weaker players.

No retailer can afford to stand still, and these discounters are set to expand their presence, not just geographically and in store numbers, but also in diversity and scope.

Possibilities include offering fresh food categories, attracting more families, communicating provenance and adopting digital strategies - and maybe even online shopping.

Mike Watkins is head of UK retail and business insight at Nielsen

Topics