What is attracting rich Brits to hard discounters?
Recent research by market researchers at Mintel showed that in the UK, 77% of households with an income of £50,000 (€56,000) or more visit food discounters, compared to 73% of those with a household income of £15,500 (€17,400) or less.
You’re never too posh to push a discount trolley, the market research company concluded.
Unsurprisingly, the biggest pull factor is price, cited by 93% of shoppers. But 71% of those questioned also said the quality of discount products was as good as anywhere else – “a big positive for the sector”, said Mintel.
Total discount sales in the UK are tipped to reach £26.7 billion (€30bn) by the end of the year, with food discounters making up the bulk of this at £17.2 billion (€19.3bn).
Mintel also predicts total sales will grow a further 57% over the next five years to reach £41,827 million by 2022, meaning discount supermarkets will account for 11.4% of all UK retail sales.
According to senior research analyst Nick Carroll, this is in large part down to discounters’ efforts to ‘premiumise’ some ranges, such as wine and locally sourced fruit and vegetables.
“The post-recession success of leading discount food retailers has been built on a softening of their hard discount roots and bringing in ranges which appeal to a wider variety of consumers. A part of this success has been the introduction of more premium ranges, something that is clearly going over well with shoppers.”
Marketing make-over: From Lidl to Dill
Marketing and image-crafting are also at the heart of this, according to Per Sundelin, consultant at The Healthy Marketing Team. He told FoodNavigator: “Perception is reality, and we see that many hard discounter retailers are becoming bold and daring to create their own image. Lidl turning into ’DILL’ is one good example.”
In this publicity campaign in Sweden, the discounter revealed that each dish in the much hyped, high-end gastronomy restaurant, Dill, was in fact made entirely with products from Lidl.
The discount retailer is also careful to back up its claims to quality, stocking products with European quality marks, such as PDO parmesan, and ensuring all its seafood is certified as sustainably sourced by the Marine Stewardship Council (MSC).
A healthy dose of future growth
Meanwhile, with Brexit looming, casting its shadow of uncertainty over the economic landscape, discounters in the UK are poised for further growth.
But instead of solely relying on economic uncertainty to grow, the discounters can also be proactive, said Carroll. He advised budget retailers to increase their range of ‘healthy eating’ products after a Mintel survey found that 45% of discount shoppers wanted a wider range of healthy foods.
“Given how important higher socio-economic consumers are to food discounters, and their attitudes towards healthy eating, it is clear this should be an area of focus for the discounters.
“With a price premium placed on products under the ‘healthy eating’ heading, a lower-cost but still high-quality alternative from the discounters is likely to prove popular,” Carroll said.
This is already the case in Lidl and Aldi’s native Germany, where hard discounters have an even stronger position in the retail space, with many chains offering loose, unpackaged nuts, dried fruit and seeds, as in health food shops.
Action/reaction
So what should manufacturers of branded products do in the face of this?
“Unfortunately my immediate answer is not new in any way,” said Sundelin. “Innovation! The fact that the big retailers have focused their R&D budgets on continuous renovation is now taking its toll on their market share and margins.”
Category director for UK food & drink research at Mintel Kiti Soininen added: “The challenge for brands is to provide a tangible point of difference that own-label can't replicate. This is why own-label dominates in categories like chilled meat and poultry, milk or cream.”
On the other side of this coin, lie categories such as chocolate, confectionery, biscuits, snacks and carbonated soft drinks where brands dominate.
“Here many brands have successfully positioned themselves as having a unique flavour, over which they have a ‘monopoly’,” said Soininen. “The low share that these products take in consumers' overall grocery budget helps, meaning that there's less of a barrier to trading up, while their role as treats means that emotion is an important choice driver.”
