When Aldi beat Waitrose to the top prize in a food awards ceremony last year, the room went quiet. "People were gobsmacked," says Tony Baines, Aldi's MD of buying. "The industry sat up and took notice."

So they should. While hard discounters collectively command less than 6% of the grocery market, according to TNS, they have sharpened their acts over the past year, opening new stores, introducing improved ranges and launching slicker marketing campaigns.

Their strategy is working. Over the Christmas trading period, many of the multiples were left trailing in their wake on like-for-like sales. Lidl reported 6.5% growth, while Aldi pulled off 8.1% . So, with shoppers set to tighten their belts this year, has the hard discounters' time finally come?

Tesco seems to think it has. For years it, like the other big box multiples, dismissed the threat of the discounters on the grounds that they had entered the market too late and with price points that the supermarkets had pre-empted.

Last month, however, there was evidence of a shift in stance when it announced that over the first quarter of 2008 it would increase the number of own-label lines that match the discounter's prices from 300 to 500. The move followed Asda's admission last year that it wanted to be the hard discounter of the big four. The multiples' concerns may be well-founded. A growing number of shoppers have shrugged off their snobbery about discounters, according to an annual Which? retail satisfaction survey.

Though Waitrose topped the rankings, all four leading discounters were placed ahead of the big four supermarkets. Lidl was joint sixth among the high-street stores, Netto eighth and Aldi ninth, way ahead of Tesco and Asda in joint 37th place, Morrisons in 46th place and Sainsbury's in 49th.

After years of struggling, discounters finally seem to have hit upon a formula that works, say the experts. "The value chains are doing well as a result of repositioning and responding to what is important to shoppers," says Stewart Samuel, senior business analyst at IGD.

There has also been a change in attitude, says Joe, Morris, operations director of TJ Morris, owner of Home Bargains. "With the popularity of Primark, it has become trendy to save on certain products and buy designer labels elsewhere - to mix and match," he says.

But what has really signalled a gear shift for the grocery discounters is their switch from offering just basic staples to a providing a full weekly shop, moving away from a mix-and-match proposition.

Aldi led the way when it began to introduce more premium ranges in 2005 backed by slick marketing such as its 'Spend a little. Live a lot' TV campaign. Since then, it has doubled its range of fresh foods and added premium lines such as lamb shanks and stone-baked pizzas.

Over the year as a whole, sales rose a whopping 12.1%, with fresh vegetable sales up five-fold. The strategy has helped it attract more middle-class customers, allowing it to go for outlets in upmarket neighbourhoods. It recently opened a store in affluent Walton-on-Thames and is soon to open another in Thornbury, Gloucestershire.

Range expansion has also been at the heart of Netto, Lidl and Home Bargains' strategies. Lidl has introduced Fairtrade and organic ranges and popular brands such as WeightWatchers, while continuing to push hard on price, undercutting the multiples by at least 25%.

Netto, which has so far struggled to make a real impact in the UK, plans to add another 300 products to its range in the next few years and is adding food-to-go and greeting cards to offer customers a full shop. Like Aldi, it has worked hard to broaden its customer base.

"We do not attribute our growth to one demographic," adds a spokesman. "We aim to appeal to a wide audience, especially consumers wanting to save money without compromising quality."

Many analysts are sceptical that the discounters will be able to significantly extend their reach, however, pointing out that Tesco and its rivals have plenty of resources to fight back on price.

"The swing in sales to discounters is not big enough to say consumers are definitely trading down and that this is the start of a trend," adds James Collins, analyst at Deutsche.

Though an economic slowdown could encourage more people to shop at the discounters, it will also hit the spending power of those who already do, others point out.

It won't stop Tesco looking over its shoulders anxiously.n

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