I hesitate to add to the pages which have already been written in industry journals about the seemingly unstoppable surge of the continental hard discounters.
But it seems to me that most analysts and commentators have missed a key driver of the success of both Aldi and Lidl in the UK over recent months. It’s a driver which in my opinion marks a sea-change in their battle with the Big 4 major multiples for UK grocery market share.
Firstly, however, some background to this current wave of growth and some explanation of why I, for one, think it’s different this time around.
To begin with I agree with the discounter “sceptics” that surges in discounter growth are nothing new, and that past recessions have also seen discounter share gains; not only for Aldi and Lidl, but also more widely for private label no-frills/basics offerings and also for some now-departed high street discounter names like Kwiksave from whose absence Aldi and Lidl have undoubtedly gained during this most recent economic downturn.
Where I don’t agree is that the past will therefore repeat itself and, as the economy recovers further, Aldi and Lidl will lose some of their gained share, and “business as normal” will resume for the “traditional” UK grocery multiples.
In my view it won’t, and the reason is that both Aldi and Lidl have this time crossed a Rubicon of household penetration and respectability which will deliver growth beyond economic recovery and the accompanying rise in UK consumer confidence.
Recent household penetration data coupled with “brand affinity” measures suggest that over 50% of households now shop at these discounters and are moreover endowing them with favoured brand status. The prevailing mood of middle (and even upper) income Britain has moved from “I wouldn’t want my friends to see me shop there” to “I wouldn’t want my friends to think that I’m stupid enough not to not shop there….Why would I pay twice as much for something of equal quality?”
The biggest challenge for the mainstream UK multiples and for brand owners, however, is one that has gone largely unremarked by the sector’s analysts despite being at the heart of the hard discounters’ value proposition.
It is centred on those categories with fairly low levels of past/current private label penetration, where large premium-priced brands have historically held sway.
As I study price and value comparisons between the established multiples and the Euro Discounters, I have not been particularly persuaded by the discounters’ value proposition within mass-market categories in which the major multiples already hold a high private label share. If I take chilled or frozen ready meals for example where major multiple private label share has been well developed for decades, I don’t see a persuasive value advantage for the hard discounters. In fact when I add into the equation the variety of ready meals on offer from the Big 4 versus the discounters in this repertoire consumer segment, I see material disadvantage for the discounters.
Where the value comparison becomes eye-wateringly stark on the other hand is where the Euro Discounters take on brand icons in categories with a historically low-level of private label presence amongst the Big 4 multiples.
Take confectionery countlines as a for-instance; a category dominated by big brands like Mars Bar, Crunchie, Snickers etc., with limited private label share beyond simple chocolate bar offerings or the premium niche segments.
Now look at the price for a 6 pack of a brand called Titan – Aldi’s Mars Bar look-alike under its own “pseudo brand”.
When I looked, Titan was retailing as a 6 pack (228g) for 69p or 30.3p/100g.
Then go to a Big 4 multiple and check out Mars Bar pricing where, when I did so, I found a 7 pack (365g) retailing at £2.75 or 75.3p/100g; a pack-price differential of nearly four times and a grammes/pence premium of almost 150%.
If you’re still unconvinced, go and buy a Titan bar and tell me that it doesn’t look and taste pretty good; especially when you realise that you can eat several of them for the price of a single Mars bar!
And this pattern is repeated across numerous of those categories and sub-categories previously dominated by manufacturer brands.
This, in my view, is where the threat posed by Aldi and Lidl towards the major multiples is at its most devastating.
Consumers may or may not save a few pence Vs the big 4 on a shopping basket of own label custard creams, ready meals, chocolate bars, ready-salted crisps and the like, but that is missing the point; the major headroom for Aldi and Lidl to offer serious savings is where they offer well-presented, good quality proprietary brands like “Titan” against the established brand offerings within the major multiples in categories and sub-categories with little or no existing private label offer.
For private label suppliers, especially those operating in categories with plenty of headroom for private label growth against established brands, this should be good news. Provided these suppliers can make a decent fist of matching the quality of some of the iconic brands in these categories, the only way is up. Aldi and Lidl’s clever use of pseudo brands will counter much of the historic consumer resistance to “own label” offerings in brand-loyal categories – little Jonny or Joanna might have turned their noses up to a “no-frills” nougat and caramel chocolate bar” in the sweeties barrel at home, but they are likely to become increasingly open to Dairyfine Titan bars and the like.
For brand manufacturers, the news is therefore more mixed. In categories like those cited above, volumes and market share may be squeezed on profitable core SKUs – bad news! The appropriate response is, as I’ve argued before in these columns, the same as it has always been for brands facing the threat of Private Label incursion on their turf; relentless investment in quality superiority, in innovation and in emotional brand value through marketing – good news for those who have long argued that brands which are not investing in both tangible and intangible barriers to PL entry will fail to justify their position on the shelf!
Whether you’re a major multiple or a private label manufacturer or a brand owner, Aldi and Lidl’s continued growth surge demands a long hard look at how these discounters are tearing up the rule book. Private label “brands” may not be new to the grocery world, but never have they been marketed to such devastating effect as now by Aldi and Lidl.
There is room for both brand owners and private label manufacturers to prosper in this new world, but beware complacency – there will be casualties!