Research: From Hard Discount to Smart Discount, the evolution of the discounter format

Updated: Jul 15

There is no doubt that the Discount format has become a successful model in much of the countries where it operates. Thus, if we analyzed the data in Spain, (1) Lidl became 2021 third in market share, passing in a single year of 5.9% to 6.7%, and Aldi was the chain that won the most buyers the year past.


In other markets near Spain and discounters are famous for their competitiveness, the situation is similar. In the French market (2) Lidl and Aldi were the chains that most saw their share last year. In the case of Lidl reaching 7.1% and growing 0.4% compared to 2021 and by Aldi rising 0.3% compared to the previous year to reach 2.8% market share.


In the case of the United Kingdom (3) Aldi is already the fifth leader of the market with 7.8% market share, winning 0.4% compared to the rest of British chains. For its part, Lidl evolves in the last year from 5.9%to 6.2%, with a rise of 0.3%.


This evolution of growth and consolidation of the Discount model is not punctual with respect to the year 2021 but has been consistent in recent years in most countries where the format operates. In addition, according to the IGD Research Institute, this trend will continue to accentuate. IGD (4) provides that the participation of the Discount format in the EU will grow from 23% in 2018 to 26% in 2023, being the format that increases its market share. Only the online format also grows its participation in this period. The rest of the channels (hyper, super and agreed) remain stable or decrease.


Discount supermarket

What has been the strategy that has implemented the Discount that is giving so good? The main Discount operators understood years ago, if they wanted to grow consistently in the future, they needed to attract new customer segments, not only those focused on low prices but all others. They also needed to change the customer's perception that in their stores you could only buy opportunities or the classics commodities, and that their establishments became 'One Stop Shopping' stores where the customer could make their full purchase if you wanted.


Therefore, this evolution has in a certain way a certain "supermarket" of Discount, but which has been carried out in a very intelligent way because certain layers of value of the supermarket have been added to the discount stores, without losing any of their strengths. As price competitiveness, the simplicity of the assortment and functionality of its stores. That is why I like to call this evolution of the discount model the Smart Discount, because this evolution has been intelligent, skilled and elegant, all meanings of the word smart in English.


Smart Discount: such as Aldi Corner Store in Australia

What have been the concrete elements that have progressively incorporated into this new Smart Discount concept? In recent years there have been many changes, I will focus on the most relevant:

  • Improvement of the quality of the assortment that has allowed a change in the perception of the consumer to the OEM private label brands.

  • On the one hand, significantly raising the standards and requirements of the products in the assortment as a whole regardless of their category.

  • On the other hand, throwing new ranges with differentiated positions such as the Premium range (eg, “Special” products of Aldi) or specific ranges in certain categories (eg “La Queseria” of Lidl) that have changed the perception of the customer towards the assortments of these retailers.

  • Focus in the development of frescoes seeking to raise the frequency of visiting consumers.

With a phenomenal impulse of the hot point incorporating a wide variety of breads and pastries, as well as an excellent merchandising at the point of sale.

  • Continuous attention in the freshness and quality of fruit and vegetables, with frequent promotions in store seeking product rotation.

  • Adding fresh meat and fish to offer 'One Stop Shopping'.

  • Greater extension of assorted through the innovation of new products and incorporation of leading brands and regional products

There has been a great evolution of the commercial offer, evolving from an assortment focused only on basics with few news to a very active innovation strategy with continuous launch of new products that respond to new units of need and provide a differential value to the consumer.


Likewise, leading manufacturers and regional products have found an opportunity to introduce their products through 'In & Out special buy' actions, giving a commercial dynamism to the assortment and contributing novelty to the consumer.


Strong investments in the renewal and opening of new points of sale.

With an ambitious expansion of stores to reach new customers and be closer to them. Both Lidl and Aldi opened in 2021 around 40 stores each in Spain. This expansion policy has occurred in other countries such as the United Kingdom, France or Portugal and will intensify in the coming years.


Bet on the comfort and experience of buying the customer with a new store concept. The discount teaching have gone from being famous for their Spartan establishments to having a network of wide, modern and functional stores that have radically changed the customer's purchase experience.


Next steps of the Smart Discount: such as the Queeria Lidl, cheese section

At this time, what are the following steps in the evolution of this concept Smart Discount? In addition to continuing to evolve at the aforementioned points, in the coming years the Smart Discount will invest intensely in the following axes to continue giving value to its consumers and differentiate itself from its competitors.


Focus on the sustainability axis with a broad and transversal reach along the entire value chain.

  • Incorporating animal welfare accreditations for products of animal origin and different certifications for much of the assortment, “UTZ” for coffee, “Fair Trade” for chocolate and so on in other categories.

  • Reducing or eliminating plastics in the use of containers and packaging in products and in the auxiliary materials of the stores.

  • In the opening and renovation of eco -efficient stores and stores that use renewable energies and work with efficient systems throughout the property.

  • Commercial development focused on the axis of health and healthy products.

  • Promoting a wide range of assortment of bio products at affordable prices. Both Lidl with "Bio Organic" and Aldi with "Gutbio" have been developing in recent years a bio assortment that already has about 200 products and will expand in the future.

  • Expanding the range of vegan products and dedicating specific brands for said segment. This is the case of Lidl that has developed the Vermondo its own brand to go to the vegan and flexiterian segments.

  • Incorporation of Nutri-Score labeling (nutritional traffic light) in its MDD assortment to commit to transparency and improvement of eating habits.


Impulse of solutions, introducing a new purchase mission

Responding to a whole series of social, culinary and consuming changes that are changing customer consumption habits. The Smart Discount teachers, with locations within the cities and the frequent visit of customers, will boost the offer of this type of solutions -for example, a variety of dishes and salads, fresh juices, coffee, cut fruit, etc. Examples such as the new “Aldi Corner Store” store in Australia or the new range of “Gastro Collection” products in Aldi UK are in this line.


Bet on digitalization and online channel.

Traditionally these types of teachers have been lagging with other competitors regarding digitalization and online. However, they are recently addressing new projects such as the following:

  • Personalization of the relationship with the client with tools such as the LIDL loyalty app with personalized coupons and gamification dynamics to gain frequency, increase medium basket and gain faithfulness.

  • Online shopping. It is the pending subject to address in the coming years. Lidl already operates online in different countries with the bazaar and textile, but the food still has pending. Aldi, on the contrary, is promoting some initiatives on the online food channel: Click & Collect in some stores in the USA and UK, and alliances with delivery platforms in others.

  • Purchase with automatic payment. ALDI has been the first of the Smart Discount operators to take the first step opening in London last January the first store with Check-Out Free technology.

In conclusion, we can see how the classic Discount model has progressively transforming into a new model that offers a more powerful and robust value proposal to attract all consumers. The Smart Discount adds multiple layers of value to the client, but without breaking the "core" of the Discount model, staying faithful to its formula of competitiveness, practicality and proximity. Without a doubt, this new model will be an excellent competitor in the coming years for the rest of the formats that will have to reinforce their strategies to win the client.


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(1) Kantar Worldpanel Spain data. Accumulated consumption P9 2021

(2) Kantar Worldpanel France data. FEE Last 12 weeks February 2022 vs. February 2021

(3) Kantar Worldpanel UK data. FEE Last 12 weeks January 2022 vs January 2021

(4) Retail in 2025.


Sources:

  • (1) Datos Kantar Worldpanel España. Consumo acumulado P9 2021

  • (2) Datos Kantar Worldpanel Francia. Cuota últimas 12 semanas febrero 2022 vs febrero 2021

  • (3) Datos Kantar Worldpanel UK. Cuota últimas 12 semanas enero 2022 vs enero 2021

  • (4) Retail in 2025. IGD

See here for more: https://www.foodretail.es/blogs/firma_invitada/hard-discount-smart-evolucion-formato_7_1672402744.html



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