Fighting back against the discounters

Fighting back against the discounters

26 July 2017

In a recent blogpost on the 9 myths about Lidl, we exposed the biggest misconceptions many traditional grocery retailers have about the discount chains. Growing in size and popularity, even with middle and upmarket consumers, these retailers are slowly but surely eating away at market share as they expand their global footprint. Whereas previously not viewed as serious competitors, now many traditional grocery retailers are waking up to the impact these players will have on their customers and ultimately their sales.

So what’s the best approach for fighting back against the rise of the discounters?  Here are our recommendations:

1. Don't let them get established. Take discounters very seriously - the more they get established, the more stores they'll open and the more the market will react. Don’t think discount chains won’t impact traditional and even niche grocery retail heavily in the long run. They are just as much a threat as Amazon if you’re a grocer. Through predictive agent-based modelling techniques, we see markets like California experiencing the likes of Aldi and Lidl gaining 10% market share by 2021 unless they are aggressively contested.  In Germany and Poland, discounters have 45% combined market share of the grocery market.  

2. Create a highly localised response. Discounters tend to have a small sales impact radius (1km in most cases and a 3-5% impact). Your strategy can be highly localized, for example: establish price and range zones, and localize marketing for these catchments. Aggressive local response to openings can be highly effective in slowing down discounter expansion significantly.

3. Strengthen “value for money” credentials.  Without doubt, retailers need to invest in price on the most price-sensitive items to compete. However, other key approaches are: strengthening private label quality and offer; running strong, effective promotions that drive consumption; introducing more special buys; and developing your own “Value” format.

4. Focus on key categories.  There are specific categories where customers switch spend. Focus action on key categories such as Produce, Meat, Frozen, Ready to Cook when facing into discounters.

5. Win the main events and accentuate your strengths. The majority of sales impact is from customers visiting less frequently (69%) and putting fewer items in the basket. Crucially they’re still shopping with you, so focus on great store standards and service, and accentuate your strengths. Make extra efforts to win the main events and month-end big shopping trips by locking in customers to spending all their grocery budget under one roof. Highlight added value services such as promoting convenience of Click & Collect.

6. Simplify your assortment. Offer a better choice but at the same time optimise the number of SKUs so it’s easier to shop. This enables higher volumes per SKU which commands lower prices and it drives efficiency in operating costs.

7. Use personalised ‘under-the-radar’ marketing.  Utilise your customer loyalty programmes more effectively by creating ‘under-the-radar’ personalised offers based on individual customer needs. The unique and relevant nature of these campaigns drives a stronger customer response. Another key approach uses customer data to target your most ‘at risk’ customers based on drive time and location and price sensitivity.

8. Optimise your promotions. Many retailers have resorted to the knee-jerk tactic of running more and more promotions to compete with discounters on price. This creates confusion for customers in-store, encourages switching and erodes margin. By using customer data to determine which promotions are most relevant and work best, you’ll see better return on investment for promotional spend and will improve the shopping experience. Money saved by eliminating poor performing promotions can in reinvested in basic prices or other value levers that will help differentiate you from the discounters.

For a deeper dive into what's driving discounters, join our upcoming webinar:

  • Europe: Wednesday 13 September 2017 at 10am BST - More
  • America: Thursday 14 September 2017 at 12noon CET - More

Global Head of Retail

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