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The Rise of the Discount Supermarket

Check out this story and more in our November 2014 issue of Food Drink & Franchise! The grocery landscape is changing. As more options are made ava...

Frazer Jones
|Nov 3|magazine11 min read

Check out this story and more in our November 2014 issue of Food Drink & Franchise!

The grocery landscape is changing. As more options are made available, through brick and mortar means and online, the basic catch-all supermarket form is losing market share ground to more specialized markets that are able to offer an array of products that may be smaller, but are targeted toward more focused demographics. On one end of the spectrum, there are upscale specialized grocery stores like Whole Foods and Waitrose that appeal to shoppers with more money to spend on organic or artisanal products. On the other end of the spectrum are some of the fastest growing chains today: the discount chains.

All That Discount Chains Have to Offer

Many consumers started turning to discount chains when the global economy took a critical hit in 2008 – but in a world filled with coupons and club cards, it takes more than prices alone to make consumers realign their brand loyalties to shop at new brands and chains.

What is happening is that, while traditional grocery stores have been maintaining the status quo, many discount chains have been working to improve the quality of their products and customer service while maintaining their prices. Aldi, a US-based subsidiary of German discount grocery chain Aldi Sud, cited the quality of its private label brands and its green policies as some of the reasons for being named a grocery leader earlier this year. “These latest survey findings prove that a growing number of consumers are choosing to shop at ALDI for more than just low prices,” said Aldi president Jason Hart.

Of course, low prices are still vital. But what consumers are looking for in low prices has changed over the years. According to studies, many consumers have grown fatigued with coupons and rotating savings, and are looking instead for everyday lower prices. Some traditional grocery store chains like Albertsons and Ralph’s have already begun adjusting their pricing systems to better reflect this change, but those that haven’t are now finding themselves lagging behind in sales when their sales fail to compete with everyday prices elsewhere.

A Reformed Reputation for the Discount Chain

For a long time, reputation had a lot to do with saving traditional grocery stores from losing ground against discount chains – while discount chains may be less expensive, that has also come with the association that they carry lower quality products. But over the years, discount grocery stores have been working to overcome the issue.  

In some cases this stereotype still stands, but it’s no longer considered a given that low prices mean low quality. Of all discount grocery store chains, the one that has singlehandedly done the most to counter the idea is a well-known cult favorite chain that has been a subsidiary of Aldi Nord since 1979: Trader Joe’s. For decades the brand has built a reputation of offering unique and high-end products at relatively low prices, achieving this by sticking almost entirely to private label products and valuing a breadth of items over a depth of brand name choices.

Across the Atlantic, Sainsbury’s is gaining a similar reputation, bridging the gap between budget prices and higher-end product choices. Both chains challenge the notion of what it means to be a discount store, a challenge that has resulted in a stronger percentage of the grocery market share compared to more standard chains.

What Can Traditional Supermarkets Learn?

Does this compartmentalization of the grocery store industry mean that traditional supermarkets are going the way of the buffalo? Not quite – but some will certainly have to change their strategies if they want to stay relevant and marketable to consumers for the long haul. In an open letter to incoming Tesco CEO Dave Lewis, Telegraph correspondent Graham Ruddick advised taking a long look at rivals like Aldi and Lidl and making an effort to understand what it is about them that keeps their customers coming back. “Even if you believe the rise of the discounters is a temporary fad – which would be foolish – you must understand why families who drive Audis and BMWs have started to shop there,” he notes.

For struggling grocery chains, the smartest money is on believing wholeheartedly that discount chains are here to stay, understanding what makes them so appealing, and finding those traits within themselves.