Tesco, Sainsbury's and the like should be afraid – Aldi and Lidl can only get bigger

James Quinn
17 Nov 2015
Telegraph UK
The rise of the discount supermarkets continues unabated and competition will only intensify
The annual race to convert eyeballs into footfall is one which a small band in the retail industry spend the majority of the year on.
Although John Lewis has become synonymous with the Christmas television advert, rival retailers spend just as much time and preparation to ensure that their festive campaign brings shoppers through the doors in the run-up to December 25.
Whereas for department store retailers such campaigns can often be about brand building and raising awareness of specific issues – John Lewis has partnered with Age UK this year for example – for the food retailers, it tends to be very specifically about product.
In 2014, Lidl, the German discounter, spent a rumoured £20m on its ‘Christmas Surprises’ campaign, which preyed on the public’s perceived negative views of its products, and getting them to taste them blind to find out how good they were.
This year the discounter has opted for what it calls the ‘Lidl School of Christmas’ in which so-called teachers teach pupils how to untangle fairy lights or feign delight when receiving a questionable gift.
But just as the actors in its advert are teaching others how to survive the festive season, so Lidl and its fellow discounter Aldi are teaching their larger British rivals a thing or two when it comes to food retailing.
The latest market share data, out yesterday , shows that between them Aldi and Lidl now account for 10pc of the UK grocery market, a landmark.
What is more, the pair have doubled that share in just three years, according to research provider Kantar Worldpanel.
In private, senior executives at the Big Four supermarkets – Tesco, Asda, J Sainsbury and Wm Morrison – often dismiss the threat of the discounters, acknowledging that although they have a place in the grocery firmament, a 15pc share is about their limit.
This data proves that they cannot be ignored. In the last quarter alone, Aldi and Lidl have attracted an extra 1m customers compared to the same period last year, and the average spend is now more than that spent on average.
The traditional retailers would argue that their spend is artificially reduced because of the preponderance of convenience stores – where spend tends to be lower – in their estate, but that would be to miss the point.
The two discounters can no longer be dismissed as places where curious shoppers go to buy some continental biscuits that they have never previously heard of, picking up some cured meats on the way to the checkout.
A lobster which is certified sustainable and will be on sale at Lidl for £4.99
Part of their success is down to value, a trend which played well during the recession but has continued since it ended. Consumers are now more acutely aware of the money that they spend on groceries, and as such are more willing to spread that spend.
While the argument that shoppers use Aldi and Lidl to pick up some staples and more novelty items may stand for some, for others they have become a focal point for the weekly shop.
Research in The Grocer magazine earlier this year found that 31pc of Aldi and Lidl shoppers are from the so-called “AB” demographic, made up of upper middle class and middle class managers and professionals.
Another part of their success is down to the fact that they are continuing to open sites, suggesting that their growth trajectory will continue.
While their larger rivals close shops and sell off unwanted parcels of land and stores – such as Morrison’s £25m sale of its disastrous MyLocal convenience store venture to Greybull – the discounters are unrelenting in proving that physical expansion is key.
As our retail correspondent Ashley Armstrong revealed in The Telegraph at the weekend, Aldi and Lidl are working to open five times as many new stores as the so-called Big Four incumbents.
Between them the duo have lodged planning applications for 171 new stores, against 29 for all the major supermarkets. While it is true both maybe playing catch-up in terms of physical presence against the likes of Tesco and Sainsbury’s, put simply their intention is enough to suggest that they will continue to expand their estates.
And it is not just expansion that is on the cards. A week ago Lidl unveiled its ‘store of the future’, featuring wider aisles, longer tills to allowing packing at the check-out, customer toilers and self-service check-outs.
The retailer will spend £1.5bn over the next three years on store expansion and refurbishment, allowing it to steal a march on its rivals.
One area in which the discounters have been slow to move on is in their online offerings. Although both have high-end websites detailing products and store locations, neither has yet to venture into online ordering.
Aldi has said it will start home delivery and third party collections next year for wine and non-food staples, but stopped short of saying it will sell food in this way. Lidl however has no apparent plans to even do that.
But while some may question this, and see it as a negative, it is in fact a positive.
The larger supermarkets have spent the best part of the past decade working out an online strategy which in many cases involves expensive home delivery businesses which simply eat the lunch of their physical stores.
Add in to that the coming threat that is Amazon – which is already selling 4,000 grocery items in London and the south-east through its Pantry offering and is expected to launch Amazon Fresh next year – and the discounters’ policy of sticking to their knitting seems to have been a sensible one.
This is not to say that everything that Aldi and Lidl touch turns to gold – far from it – but what is clear from the latest market share data, as well as Asda’s latest results, is that the two discounters have a significant amount of momentum behind them, one which their more traditional rivals will almost certainly struggle to slow.
james.quinn@telegraph.co.uk