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Dawn of the Discounters

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For a long time, the UK’s supermarkets have held to an established pattern: the “Big Four” holding the majority of the market, alongside the high-end retailers such as Waitrose and M&S and smaller operators such as Iceland and Budgens. Yet recently discount stores such as Aldi and Lidl have taken a growing share of the market. Many reasons have been given for this surge, which can be summarised as:

Changing shopping habits: While many supermarkets were set up as large, out-of-town centres offering everything consumers need for a once-a-week shop was on offer, shoppers’ habits are increasingly changing. More frequent trips to smaller, town centre stores are now common, meaning that the discounters, with smaller, town-centre locations, are much better placed.

Increasingly savvy shoppers: It’s a simple fact that, especially in the wake of a recession, consumers have become more cost-conscious. Indeed, being thrifty is seen as something to be proud of – how much was saved on a particular bargain is very often the topic of conversation. This means that the discounters, with their simple ranges of low-cost products, are an increasingly attractive option. However, low cost alone won’t consistently attract shoppers.

Affordable luxury: The other side of the low-cost coin for the discount retailers is that they aren’t only offering basic staples. Instead, from champagne to truffles to venison, luxury foodstuffs are on sale at a very attractive price. The opportunity to dine well on a budget will always attract cost-savvy shoppers, making discount retailers a proper destination for those who want more than simply bread, cheese and beans.

Focused attention: Unlike traditional supermarkets, which will stock a multitude of private-label and name brands for each product they sell, discounters can be much more focused. A single retailer will only have a few brands in each case: the majority of which will, despite their labelling, actually be private label. This means the retailer can concentrate purely on the quality and cost of its own products, while also reducing the amount of shelf space needed.

At first glance, the discount supermarkets could be seen as a serious threat to their rivals, consistently offering the lowest price to shoppers. However, there are far more ways to differentiate than via pricing: indeed, a race to the bottom could be damaging to all involved. Success doesn’t just mean offering the same as everyone else but at lower cost: it also means innovating in order to stand out from the crowd. The modern savvy shopper is concerned about far more than just price and now demands more information on the products they consume. This is especially true in the wake of food crises that have made more consumers question exactly what is in the food they buy. Indeed, recent research commissioned by Trace One showed 83% of consumers demanding increased transparency and information for food products.

Giving the customer what they want:

This same demand for information is present in just what consumers want from their produce. From specific health information, to ethical concerns such as whether food is fair trade or free-range, to specific farming methods such as organic or GM-free, to the actual origins of a product, there are a multitude of ways to attract consumers with specific demands.

By designing and providing products that suit these specific desires and clearly giving consumers the information they need to make their decision, traditional retailers can ensure that they are attracting customers. This is where the breadth of goods a traditional retailer can provide becomes an advantage: they have the space to offer private-label products that are healthy, allergen-free, organic, fair-trade, UK-grown, or any combination of the above. More importantly, they have the opportunity to innovate and provide shoppers with precisely what they want.

Opportunities for innovation:

The opportunity for innovation goes even further beyond this. For example, packaging design, serving size and ingredients all give retailers opportunities to innovate with their private label products. Rather than attempting to directly compete on price, retailers can instead offer shoppers something that they can’t get anywhere else. Asda expanding its Butcher’s Selection sub-brand across all meat products, giving shoppers confidence that meats are freshly prepared, or Waitrose introducing its “LOVE life” kitchen utensils to help control portion size for health-conscious consumers, are just two examples of innovation opening up new opportunities.

Such a change won’t happen overnight. Collaboration between retailers and their manufacturing partners will be vital: both to gauge customers’ needs and to ensure that retailers can react quickly to changes in demand. By sharing information up and down the supply chain, all parties can be certain that they’re ready for whatever the world throws at them.

Published on Friday 24 October by Editorial Assistant
Tags: discounts

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