Five reasons we shop at discounters - and five ways for supermarkets to hit back

As the success of the discounters dominated much of the retail trading news over the festive period, Simon Goodall, chief strategy officer at shopper marketing agency Lowe Open, takes a look at why more of us are happy to shop - and be seen - in Aldi and Lidl.

Aldi's New Year ad for its £9.99 Champagne
Aldi's New Year ad for its £9.99 Champagne

More than half of UK housewives shopped at Aldi, Lidl, or both, this Christmas. This fact is just one of many eye-catching stats that reveal how Aldi and Lidl are truly embedded in the retail scene and enticing shoppers from all demographics through their doors - 77% of discount shoppers are ABC1 these days.

While Sainsbury's - the big success story out of the "Big 4" - grew sales just 0.2%, Aldi’s December year-on-year sales are up 30% and Lidl’s are up 15%.

UK housewives were trying discounters, but were put off by poor shopping experience and limited range as well as a lack of "people like us"

This wasn't a one-off Christmas special as we swooped in to buy lebkuchen and stollen. The discount channel is forecast to grow 64.7% by 2017 (versus 18% for total grocery), according to the IGD. And 85% plan to use the discount channel even after their personal financial circumstances improve.

These stats make a compelling case for discounter dominance but don’t show the full picture.

The rise of the discounters was a popular topic, even before the 2008 crash.  Marketers have long heard stories of middle-class "smart shoppers" in Germany, packing their Porsches with crates of 10€ Champagne. Yet Britain’s shoppers seemed immune. 

Then along came the credit crunch, Martin Lewis and a new cult of money-saving - discounter heaven. But, after initial share gains, things flattened out a bit in 2009 and 2010.  It seemed many UK housewives were prepared to try discounters, but were put off by poor shopping experience and limited range as well as a lack of "PLUs" (people like us).

In particular, middle-class strongholds such as Twickenham were initially horrified. Images of town centres full of pound shops and charity shops didn’t fit with the identity of their towns. They also didn’t fit with the image of a successful retail sector. In fact they were seen as symbolic of the death of the high street.

Today, as the Aldi and Lidl results show, discounters are no longer seen as an indicator of retail’s decline. So what has happened since 2010 to change consumer behaviour and perceptions so strongly?

1. National debate on living costs

Things are worse now than in 2009 for most people. For millions, saving for sport has become saving for necessity and, with a 25% increase in cost of food, clothes and leisure activities, income is failing to stretch as far. Media debate makes living costs highly salient, even among more affluent shoppers and it reinforces that belts should stay appropriately tight. The mood of austerity is compelling and classless.

Picking and choosing where to buy items has become a challenge we relish

2. New shopper behaviours

Against this backdrop, smart shopping has cemented itself in the national consciousness. Retailers such as Primark laid the foundations in the establishment of the idea that cheap didn’t have to mean nasty, and technology changes put the control firmly into the consumers’ hands.

Value is more important than ever before. Consumers demand transparency to enable them to make more informed decisions about what they should buy from where. Picking and choosing where to buy items has become a challenge we relish.

3. A better shopping experience

The discounters have made dramatic improvements to their shopping experience and proposition. The quality of their fresh food and own label products, and the environment as a whole, are all noticeably better than a few years ago. These improvements have resulted in more shoppers enjoying a positive experience and coming back for more.

4. Social proof

Another big driver of change has been normalisation through social proof. Put simply, the more people you know who have shopped in an Aldi, or popped into a 99p Store, the more likely you are to try it yourself. Normalisation has taken the stigma out of buying a discounted product – in fact it has become a badge of honour.

Shoppers know that price promotions and 1p cuts are meaningless headline grabbers in a phony price war

5. The power of being an outsider

Discounters are now seen as challenging the status quo. They are the archetypal "outsider" to the big, corporate supermarkets.  After years of bank collapses, expenses scandals, corporate tax avoidance and privacy violation, no one trusts "big" anymore. Shoppers know that price promotions and 1p cuts are meaningless headline grabbers in a phony price war.

Shoppers were ready for disruption on value; the discounters give them the simple, transparent and consistent value they want.

What next for Discounters?

It seems a safe bet that shoppers will continue to be savvy and discounters will continue to grow. Even as budget pressures start to lift, the discounters’ offering will remain compelling.  And with further innovations expected in the sector and the blurring of the lines between convenience, ecommerce and discount, it is likely that tomorrow’s discounters will probably look at lot like today’s grocers - but be cheaper for consumers. 

The Big 4 fight back

The discounters’ lack of loyalty cards leaves them with a data gap

All is not lost for the "Big 4" though. They have the advantage of scale and there are a number of steps they can take to combat the rise of the discounters, including:

1. Ensure the value proposition resonates

Make it simple, transparent and reliable, and stick with it.

2. Create value, rather than just competing on price

Genuine, customer-centric service, experience and convenience can outperform price alone. Just look at John Lewis.

3. Rapidly innovate the shopping experience

Use the advantage of scale to experiment and innovate your stores. Localise the experience.

4. Get ahead of the pack on food

As living standards improve, more shoppers will look for real quality and provenance to complement their budget shopping.

5. Make data a competitive advantage

Shoppers are expecting increasingly personalised products, offers and service from retailers. Yet the discounters’ lack of loyalty cards leaves them with a data gap. Before they fill that gap, use your data to serve shoppers needs.

Tesco was yesterday's discounter

It’s worth remembering that today’s Big 4 were yesterday’s discounters. Tesco was built on idea of "pile it high, sell it cheap".

The UK Grocery market is one of the most dynamic in the world and tomorrow’s winners will be those that can best innovate and adapt to meet the needs of shoppers.

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