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ResearchFARMRetail Analysts
NEWREPORT DISCOUNTERS
www.researchfarm.co.uk
March 2015
7 Strategies: How to combat the discounters
INSIDE:Key questions
answered +table of contents
WANT TO KNOW WHAT WORKS?
Over the last three months ResearchFarm has conducted an in depth analysis of the chances of success of various tactical and strategic responses to the discounters, including:
• relaunched private label propositions • price wars• discounter launch or acquisition• co-location • convenience retailing• online retailing and • raising buying synergies
The recommendations and conclusions are based on historical evidence and include case examples from Belgium, Denmark, France, Germany, the Netherlands, Poland, Spain and the UK.
Broadly speaking we found that three strategies have failed to reach their aim. Three other strategies were quite promising, whilst on a seventh the jury is still out.
The report shows clearly what works and what - so far - has not.
In this report our consultants reveal some of their trade secrets and cutting edge thinking, which they have not shared with the wider sector before.
7 STRATEGIES
ON STRATEGY:
Are there any strategies that ?will contain the growth of the discounters?
Is launching a price war an effective ?solution? How long do they usually last? What does usually happen after a price war?
Can private label proposition ?relaunches achieve the desired outcome? Do better value ranges help grocers to compete with Aldi and Lidl?
Is it a good idea for a multichannel ?grocer to launch a discount channel or acquire one? Is it better to self cannibalise than to be eaten?
What are the opportunities in ?convenience retailing that could help against Aldi and Lidl? And why?
Is online retailing a panacea? What ?will happen when the discounters stretch their offer into click & collect?
Which discounters do already offer ?home delivery on their food ranges? What are the latest developments at Lidl?
Will new online service and ?marketplace models become the biggest threat to the discounters in future?
Is co-locating and footfall sharing ?a good strategy? Is it the only pragmatic solution available?
Can raising buying synergies or ?logistics synergies turn the tide against the discounters? Are French players on the right track?
What is the historic record of these ?initiatives? Which have worked in other markets? Which have failed every single time?
ON THE DISCOUNTERS:
How big are Aldi and Lidl in their ?respective markets? What are their market shares?
What are the main differences ?between the two businesses?
What are their growth opportunities? ?
Why are the likes of Mercadona, ?Biedronka, Colruyt and Denmark’s Netto successful while Dia, Leaderprice, Penny and ITM’s Netto clearly are not?
7 STRATEGIES: KEY QUESTIONS ANSWERED
FEATURES AND BENEFITS
FEATURES
An in depth introduction into the discounter concept and •the current health of the EU grocery sector
The most important data points, KPIs and benchmarks of •both Aldi and Lidl
In depth analysis of the various defensive strategies of •grocers, their positive and negative outcomes
Case examples from EU markets where the discounters •have already advanced further
Innovation in the discount sector •
Innovative solutions in online and convenience retailing•
BENEFITS
Gain insights into the little understood discounter • model in general
Understand what differentiates Aldi Sued from Aldi • Nord, and where both radically differ from Lidl
Reliable data in light of the discounters’ highly • secretive approach to business
Find out which pitfalls to navigate, when competing • with the discounters
Learn which strategic direction promises the best • results
Get access to best in class execution, shape your • strategy accordingly
TABLE OF CONTENTS (1/3)
Executive summary p8
The context: EU Grocery Retailing in 2014 p13
Grocery sizes: EU 27, 2009-2013 in ‘000 €bn, e p14Grocery sizes: shoppers cut back, shop around and go to hard discounters p15Grocery sizes: EU 27, 2008-2013 growth in % p16Grocery per capita sizes: EU 27 in 2013 in €, from Finland to Bulgaria p17
Financials and KPIs: Aldi and Lidl in 2014 p 18
Aldi: figures 2010 - 14, international contributions more important than domestic p19Aldi Sued: 2013, sales per country in €m, market shares of total grocery universe in % p20Aldi Nord: 2013, sales per country in €m, market shares of total grocery universe in % p21Schwarz: sales 2008-13, growth, domestic share of total, LFL growth p22Lidl: 2013, sales per country in €m, market shares of total grocery universe in % 1/2 p23Lidl: 2013, sales per country in €m, market shares of total grocery universe in % 2/2 p24
Spot the difference: a tale of two discounters p25
The differences: format strategy, private label proposition, FMCG brands p26The differences: SKU counts, financial performance, expansion policy p27The differences: geographical spread, innovator and second mover p28The differences: online strategies p29
Chapter 2: The private label relaunch p30
7 strategies: private label proposition relaunch p317 strategies: switch shoppers from brand to private label rather than losing them to Aldi p327 strategies: Tesco’s Discounter range, real’s no name products, French attempts p33Recommendations: Is a private label relaunch effective? (1/2) p35Recommendations: Is a private label relaunch effective? (2/2) p36
Chapter 3: launching a price war p37
7 strategies: poor visibility into discounters, early missteps p387 strategies: Hard discounters, 2013 UK stores data, 2020 forecast p397 strategies: Hard discounters average SKU sales in UK in 2014, price wars p407 strategies: Aldi and Lidl as biggest global buyers on SKU level p417 strategies: Walmart’s failed German expansion as a warning p42Recommendations: Are price wars effective? (1/3) p44Recommendations: Are price wars effective? (2/3) p45Recommendations: Are price wars effective? (3/3) p46
TABLE OF CONTENTS (2/3)
Chapter 4: launching or acquiring a discounter p47
7 strategies: launching or acquiring a discount fascia, Edeka, Carrefour, Casino p487 strategies: launching a discount fascia, Edeka as an exception to the rule? p497 strategies: launching a discount fascia, Sainsbury’s and Netto p507 strategies: launching a discount fascia, Tesco’s One Stop p51Recommendations: Is launching or acquiring a discount fascia effective? (1/2) p53Recommendations: Is launching or acquiring a discount fascia effective? (2/2) p54
Chapter 5: The convenience opportunity p55
7 strategies: securing convenience store sites, stopping discounter expansion p567 strategies: the rise of click & collect, drivers of convenience success p57Format strategy: Aldi convenience, the Kilburn Store in London p58Format strategy: Aldi convenience, the EU opportunity p59Lidl: revamping the store format towards a convenience fascia, focus on fresh and food p60Lidl: low branded SKU count, the cash desk innovation p61Lidl: drawbacks of the new model, analysis, cost drivers, space considerations p62Lidl: new formats in Belgium, outlet store and inner city convenience p63Recommendations: Is exploiting the convenience opportunity effective? (1/2) p65Recommendations: Is exploiting the convenience opportunity effective? (2/2) p66
Chapter 6: The online push p67
7 strategies: the online push – opportunity as long as the discounters don’t engage p687 strategies: the online push, Colruyt, Netto, Mercadona p69Dia: the first discounter to launch a click & collect service p70Dia: cheaper than in store, faster than drives and €30 average baskets p71Dia: catering to pedestrians, trial widened out, France only for now – now closed p72Lidl: online relaunch p73Lidl: online operations, huge branded non food presence online, international p74Lidl: tackling the non food issue, easier at Lidl than at Kaufland p75Lidl: online relaunch in Germany, coffee world, wine, pet foods, nappies etc p76Lidl: online turnover figures in Germany p77Lidl: online health & beauty launch, private label and FMCG A brands, multichannel p78Lidl: the future potential, h&b online p79December 2014: Lidl launches Deluxe online in Spain p80Recommendations: Is pushing an online proposition effective? (1/3) p82Recommendations: Is pushing an online proposition effective? (2/3) p83Recommendations: Is pushing an online proposition effective? (3/3) p84
TABLE OF CONTENTS (3/3)
Chapter 7: collocation and footfall sharing p85
7 strategies: co-location with a discounter – Aldi and dm, the footfall draw p86Aldi Sued & Rewe: teaming up in Germany, creating destination status p87Aldi Sued & Rewe: From competition to cooperation p88Recommendations: Is co-location with a discounter effective? p90
Chapter 8: raising efficiencies in buying p91
7 strategies: raising synergy effects in buying, Casino, ITM, Auchan, Systeme U, Carrefour, Cora p927 strategies: private label excluded, will this affect Lidl or Aldi? p937 strategies: France the anomaly, as discount channel loses share… p947 strategies: …but not Aldi and Lidl (only Dia, Netto and Leaderprice) p95Recommendations: Is raising synergies in buying effective? p97
Sources p98
Charts and Tables
Table 1: Grocery sizes: EU 28, 2009-2013 in ‘000 €bn, e p14Table 2: Grocery sizes: EU 28, 2011-2014 growth in % p16Table 3: Aldi: figures 2010 – 14 (€bn), international contributions more important than domestic p19Table 4: Aldi Sued: 2013, sales per country in €m, market shares of total grocery universe in % p20Table 5: Aldi Nord: 2013, sales per country in €m, market shares of total grocery universe in % p21Table 6: Schwarz: sales 2008-13, growth, domestic share of total, LFL growth p22Table 7: Lidl: 2013, sales per country in €m, market shares of total grocery universe in % 1/2 p23Table 8: Lidl: 2013, sales per country in €m, market shares of total grocery universe in % 2/2 p24
Charts 1 & 2: Grocery sizes: EU 27 2008-13 growth in % p17Chart 3: Aldi Sued: 2013, sales per country in €m, market shares of total grocery universe in % p20Chart 4: Aldi Nord: 2013, sales per country in €m, market shares of total grocery universe in % p21Chart 5: Lidl: 2014, sales per country in €m, market shares of total grocery universe in % 1/2 p23Chart 6: Lidl: 2014, sales per country in €m, market shares of total grocery universe in % 2/2 p24Chart 7: Differences between Aldi and Lidl, key takeouts p17Chart 8: Hard discounters, 2013 UK stores data, 2020 forecast p38Chart 9: Hard discounters average SKU sales in UK in 2014 p39
SAMPLE PAGES
21 ResearchFarm - Retail Analysts
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Table 5 shows Aldi Nord’s sales per country in €m in 2013 and its respective
market shares in those markets. In terms of sales Germany is Aldi Nord’s
most important market with €11bn generated in 2013, followed by the
USA (€6.9bn) and its Trader Joe’s business and France with €3.0bn, closely
followed by the Netherlands (€2.5bn).
Aldi Nord: 2013, sales per country in €m, market shares of total grocery universe in %
Chart 4
Table 5
As chart 4 shows from a market share perspective Aldi was strongest in
Belgium (8.4%), the Netherlands (7.8%), Denmark and Germany in 2011.
We expect the market share in Poland to be driven up further, as it is the
latest and newest market the retailer expanded into.
40ResearchFarm - Retail Analysts
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This approach of radically editing choice is conceptually so diametrically
opposed to a supermarket’s modus operandi that combating the discounters
will be very hard for UK grocers. Moreover, the EDLP policy of the hard
discounters also runs totally counter to a high/low pricing scheme that
harnesses insights from a loyalty scheme and exploits promotional
opportunities.Hard discounters are very much product centric and are run according
to the principle that as long as the product and pricing is right, the
rest (such as loyalty) will fall into place by itself.A solution to the hard discounter threat often put forward by city
analysts is entering into an out and out price war, but we would
7 strategies: Hard discounters average SKU sales in UK, price warsChart 9
caution against this. Historical evidence from the other European grocery
markets, where incumbents have reacted like this to the threat of the hard
discounters have only resulted in margin destruction and grocery price
de�ation across the board, it hasn’t stopped the relentless march of the
discounters.
One should consider, compare and contrast the SKU ranges of the two business
models to understand how the maths are stacked against a hypermarket
operator with 10,000s of SKUs versus a small footprint discount store with a
SKU count of between 1,000 to 1,500 SKUs, backed up by a global (supply
chain and buying) operation.
Zoom in to read
SAMPLE PAGESZoom in to read
80 ResearchFarm - Retail Analysts
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In December 2014 Lidl launched its online offer in Spain with its
premium private label Deluxe range. On Lidl’s website vinosdeluxe.
ultimas-unidades.es shoppers can buy shelf stable products from categories
such as antipasti, poultry paté, risotto rice or marmalade and jams.
In July more control had been ceded to the regional buying of�ces from
Germany in regards to the Deluxe range and how it was to be retailed in
the respective markets. Previously mistakes had been made with the range,
too many products had been bought that didn’t shift, watering down the
exclusivity angle of the brand somewhat.
December 2014: Lidl launches Deluxe online in Spain
77ResearchFarm - Retail Analysts
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That said, it’s not only the ranges that are getting widened but the retailer
is also overhauling its web offer to make it more user friendly by adopting
a clearer structure and hierarchy. Lidl already employs a couple of hundred
employees in its digital arm of the business. The discounter is revamping its
multichannel communication with the �yer and magazines in store sharing
content with online.Lidl’s reach online is so far not in the top ten in Germany. According
to some estimates Lidl reached a turnover of around €130mn online,
a drop in the ocean compared to its €18bn achieved in of�ine.
Lidl: online turnover �gures in Germany
«Research Farm publishes great reports every year, and each report brings a unique perspective compared to any other information available elsewhe-re: the analyses go deep, they are supported with data, but what I most value is that each re-port is built around a ‘clear story’, contains proprietary insights and even sometimes innovative projections into the future which help us to think out of the box.»Global Channel Category salesNestle waters
«For us the ResearchFarm reports are so useful. The information provided give us the opportu-nity to increase our knowledge about the retail industry and its key trends.»Rafael Florez - CEO GS1 Columbia
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