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Brands at the Aldi Crossroads

Posted on: April 21st, 2015 by Will Carter

As Aldi and Lidl’s UK revenues and market share continue to grow, so the crossroads facing many UK brands gets starker.

Last year we wrote a blog suggesting that Aldi and Lidl were changing the rules of the brand-own label battle profoundly and in a way not previously experienced in the UK.

Neither Hard Discounter growth nor low-cost private label initiatives are new in themselves. The rise, fall and partial resurrection of Kwiksave is testimony to the former, whilst Asda’s Smart Price, Tesco’s Everyday Value and Sainsbury’s Basics are just the latest incarnation of the latter, first seen way back in the mists of time with the launch of Fine Fare’s Yellow Packs.

What is different about Aldi and Lidl is that they have brazenly attacked iconic brands where private label has previously feared to tread, and they’ve done it by creating proprietary brands of their own, sometimes known as Phantom Brands, but on a cost structure that represents the leanest of lean private label supply chains.

Aldi’s Titan bar, a chocolate, nougat and caramel confectionery line, looks like a brand, feels like a brand, and tastes like – well, let me think – a Mars brand, but is a fraction (and I do mean a fraction) of the typical selling price of a Mars.

This leaves brand owners at a crossroads of Aldi/Lidl-related decisions as challenging as those being faced by the UK’s big four multiple grocers themselves. Here are just some of the questions they’re asking;

  • Do I want to trade with Aldi? For years I could ignore them, but if they are bigger than Waitrose I don’t think I can afford not to….
  •  Even if I can get my brand listed with Aldi what will I do about difficult price read-across with my existing big customers….Can I value-engineer a format of my brand that is unique to Aldi (and/or Lidl) which minimizes adverse read-across?
  • If my brand isn’t big enough to get a listing in its own right within Aldi’s very limited roster of manufacturer brands, should I tender for private label supply of an Aldi phantom version…..I don’t really want to cannibalise higher margin sales of my brand, but if I don’t supply, they’ll just source it from someone else

OR….

  • If my brand isn’t strong enough to get an Aldi listing in its own right, what do I do?…..We simply don’t participate in  private label supply, but is that a sustainable strategy in the long term?
  • How am I going to help my existing major customers Tesco, Asda, Sainsbury and Morrisons compete more aggressively with Aldi and Lidl?  My levels of volume sold on promotion are already at record highs and if I fund more aggressive everyday low-pricing of my brand it will just erode my margin

AND FINALLY….

If it feels this tough now when input costs are benign and commodities are broadly seeing deflation, what happens when we get another input cost spike?

As Food Strategy Associates, we’ve helped businesses who have faced combinations of all of the above questions and whilst we don’t believe in single, silver-bullet solutions to complex problems we think we understand both the challenges and opportunities as well as anyone.

We think Aldi and Lidl are here to stay and their growth isn’t over yet……This can be either opportunity or threat for manufacturers – it just depends on how you approach the crossroads!

 

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