Can UK grocers withstand a Lidl surprise?

By Gemma Combellack

18th May 2017

Grocery shopping in 2017. It’s all about online right?

Not quite. While the UK is certainly one of the most advanced markets in e-commerce, the channel still only accounts for less than a tenth of total spend on FMCG products.

Maybe online is not yet the elixir to success it is made out to be. Further proof lies in the continued success of certain retailers that have yet to even offer the service.

Two retailers in particular are storming the supermarket battle purely through physical stores. Aldi and Lidl  – neither of which currently have an e-commerce presence – have seen the biggest rise in market share this year in the supermarket category, 18.3 per cent and 17.8 per cent respectively according to Kantar Worldpanel.

As many traditional retailers look to downsize square footage, the discounters are expanding their physical presence. Only this month, Aldi unveiled plans to quadruple its UK store footprint in a bid to gain a larger share of the market.

So what’s behind the meteoric rise of these discounters who seem to be breaking all the rules? And what does it tell us about consumer attitudes to grocery shopping?

 

Price and value for money

Firstly, price is a huge factor. There’s no denying that Lidl and Aldi offer consumers astonishingly good value. According to data from Nielsen, consumers who do their ‘big shop’ in one of the discounters rather than one of the Big Four supermarkets – Tesco, Asda, Sainsbury’s and Morrisons –  save as much as £15 per trip. The disparity rises to £20 if compared to premium retailers like Waitrose and M&S Food.

These price rises have a huge impact on consumer loyalty, not only to the retailer, but even the brands that shoppers are purchasing. A recent study by TCC Global revealed that 16 per cent of shoppers have switched their main store over the past year and 39 per cent say it wouldn’t matter to them if their usual grocery store closed. Retail Economics, meanwhile, revealed that 48 per cent of consumers would switch to cheaper own-label alternatives if their weekly food shopping bill rose by 3 per cent (as predicted for 2017) — boding well for the discounters that often stock lesser-known brands.

 

Consumer perception: from conspicuous consumption to ‘inverse snobbery’

Once, serving an Aldi wine at your dinner party would have been something to keep quiet about; now it’s a badge of honour. There has been a huge shift in attitudes towards bargain-hunting — people are proud of their ability to find quality products at a great price.

This is certainly not something that has happened overnight, nor by accident. Both Aldi and Lidl have spent a considerable amount of money on campaigns to alter their perception in the minds of consumers, opening up untapped demographics.

The famous Lidl ‘farmers’ market’ adverts in 2014 showed real people buying food from a specially-constructed farmers’ market, without knowing all the products are from Lidl—only to stand aghast when handed a Lidl-branded bag at the end of the transaction.

A year later, the retailer went further, showing members of the public taking part in blind taste tests, comparing Lidl’s products with mainstream brands. While participants claimed that the branded products tasted better, they were later revealed to be Lidl’s own.

 

Convenience: taking a back seat?

Once touted as the be all and end all of ensuring shoppers spend their pounds in your tills, the importance of convenience may be waning. Now consumers are willing to shop around for a bargain: it’s not uncommon for shoppers to visit a number of stores, buying different items in each.

Bargain blogger Tom Church is a big fan of this approach and says by shopping at seven different supermarkets he has cut his grocery bill by 60 per cent. The Sun documented a week of his grocery shopping back in March, providing a sharp summary of changing shopping drivers and behaviours in the UK.

It may feel like the battle between discounters and traditional supermarkets has been waging for many years. But in truth, it is only just getting started. If they are to retain and grow their customer base in this fast-changing environment, the Big Four incumbents need to drastically address their business and communications models.

Those that respond quickly to shifting shopper needs and clearly define their position in the market will be those that ultimately win.