Two pan-European retailers have shaken-up retail competition in Italy over the past five years, their names are discount grocery retail chains Aldi and discount variety retail chain Action.
Aldi announced plans to build stores in Northern Italy back in 2017 and then began building in earnest in 2018. Today the group, Aldi South, has more than 150 stores, primarily in Alpine region of Italy.
Action said very little but began opening stores at the end of 2021, with the bulk of their 70 stores opening in 2022 or 2023. Unlike Aldi, they have moved swiftly into Central Italy and already have 9 stores in Rome. Still, most of Action’s stores are also in the Alpine region of Italy.
Most A-Brand suppliers have not ‘reacted’ to the introduction of these two concepts, especially not at the European Strategic level, for a variety of reasons.
Firstly, buying alliances and inflation have become huge topics for most brands. Secondly, no single discounter in Italy has more than 10% grocery market share, so Italy is often classified as a “low discounter share market” when viewed at a pan-European level. Also, Italy is not an “important” market for Europe’s three largest grocery discounters Lidl (Schwarz Group), Penny (Rewe Group), and the aforementioned Aldi who has only just begun investing in Italy, and only then, in a very concentrated corner of the country.
Likewise, most mainstream grocery operators in Italy have not fully reacted to the news that Aldi and Action are coming. Retailers such as Conad, SISA, Coop Italia, Esselunga, Selex have not copied their counterparts in other parts of Europe by running “Price Match” promotions or introducing huge amounts of first price private label to combat discounters.
The combined impact,the lack of A-brand reaction and the lack of mainstream grocer reaction, would lead the casual observer to two conclusions. One, that Aldi and Action are unlikely to have a structural impact on Italy. Two, that the discount channel is unlikely to have a structural impact on Italy.
The casual observer would be wrong. Aldi and Action are changing the Italian retail landscape AND the discount channel is poised to become the most important growth channel in Italy, certainly in 2024, and more likely for the next five years.
Changing the Landscape
When Aldi and Action announced plans to enter Italy, existing discounters reacted. They reacted in four areas.
1) Improved fresh – particularly in butchery/prepared foods,
2) Improved Digital – particularly in home delivery and loyalty rewards/communications,
3) Improved sourcing – particularly in food sourced from Italian manufacturers, and
4) Improvements in non-food – particularly in higher priced items such as white goods, brown goods, home electronics, and furniture.
Italy is one of just a few markets where the domestic grocery discounters are more successful than the German discounters (Aldi, Lidl, Penny). In Italy, Eurospin, MD Discount, Dpiù, In’s Mercato, and Todi have had more success than Lidl and Penny, even though all of the chains began operating in Italy in the period between 1992-1995. Aldi’s announcement that it would enter Italy was a wake-up call for all of the established discounters.
Additionally, Covid-lockdowns, elevated levels of inflation, and growing immigration have provided rich soil for the discounters to grow, without worrying too much about what other retailers are doing, just sourcing decent quality fresh foods at below market prices and opening more stores.
The result has been dramatic. The discount channel in Italy was below 12% share in 2015 and has surged above 20% in the present day. Retail Cities predicts share will reach 22% in 2025 and will cross 25% soon after, putting Italy in a special tier of European Grocery markets where discounters control one-third, or more, of grocery spending.
Predicting the Future
We often say ‘follow the money’ to predict the future in retail. There are two money trails to watch in the case of Italy’s growing list of food and non-food discounters.
The first is capital expenditure – ie, how much money is allocated to build more stores, expand to more cities, and improve logistics.
The second is advertising expense – ie, how many tv ads, billboard signs, bus-stop signs are paid for by discounters.
A leisurely drive through the secondary roads of Italy reveals the future of discounters, all eleven mainstream discounters are building more stores, in more cities, and flooding the market with marketing.
One question that often gets asked is, “Who is #1?”, followed quickly by, “Who will be #1?” The answers to these questions are less clear since you can answer that several ways and get different answers.
In terms of market share, Eurospin is #1.
In terms of “capacity” – number of workers, number of distribution centers – Lidl is #1.
In terms of price image, Eurospin is number one but there are signs that Aldi is starting to make its reputation known.
As of today, none of Italy’s discounters have hinted about exiting, selling, merging with others. However, if history is a guide, Italy has more discounters than it needs and mergers would be a normal remedy for this challenge.
Preparing for 2024/2025
We recommend that leading suppliers move "Discounters in Italy" higher up in their list of strategic challenges for 2024. For more on the background behind this recommendation, please access the full report via one-off purchase or membership agreement.
Retail Cities and DRC produce reports, custom presentations, webinars, and advisory projects for companies looking to stay ahead of change. Our most recent publication, “Grocery Discounter Wars in Northern Italy” is full of data, practical insights, category perspectives, and more. The above discussion was a snippet of the total report.
All of our reports are available for enterprise purchase as a one-off or part of an annual membership.
If this topic interests you, look out for our upcoming virtual workshop series on Grocery Discounters and more. We would love to see you join the conversation.
