Vi talar ofta om att digitaliseringen är den stora disruptorn inom handeln. Men det finns en som kanske är viktigare – Hard discount. Vi ser kedjor som Lidl och Aldi som tar för sig och presterar minst lika bra som traditionell handel inom många kategorier. Många vittnar t ex om Lidls kunnighet inom Frukt och Grönt.
Idag skickar jag med mycket intressant inlägg som publicerades på Linked in för någon vecka sedan av professor Laurens Sloot.
It might surprise you, but so far online retail is not the main disruptor in the world’s single biggest retail market – grocery retail.
It is easy to overlook the hard discount concept that is puzzling many Boards of Directors of conventional retailers. How can these hard discounters with their austere stores, limited assortment, and absence of many national brands be successful? How can they possibly disrupt markets traditionally dominated by textbook retailers such as Kroger, Tesco, Carrefour, Ahold Delhaize and Edeka? Is the world’s largest retailer, Walmart, also at risk if hard discounters keep on extending their store network?
In fact, there have only been two retailers that have defeated Walmart not only once, but twice, in Germany and now also in the UK: Hard discounters Aldi and Lidl. The rise of hard discounters now costs other retailers around 400 billion dollars per year – and rising!
The archetype hard discount banner is Aldi, invented by the Albrecht-brothers. Aldi is an abbreviation of Albrecht Diskont. This concept was a big hit in Germany’s very poor post-WWII period. Gradually they developed and internationalized their concept and nowadays Aldi operates over 11,200 stores in 20 countries. With a turnover of almost $100 billion, it is now one of the top 5 largest grocery retailers in the world.
Other retailers such as Lidl, Biedronka and BIM successfully copied – and sometimes improved – the Aldi-concept. Lidl, for example, has spread globally. Consequently, hard discounters are now prevalent in almost every modern grocery retail market, lowering reference prices all over the world.
But what has been the secret to their success? There are some key strengths of the hard discount business model, which we outline in Retail Disruptors. For instance, due to their concentrated assortment, hard discounters have the ability to buy huge volumes per Stock Keeping Unit (SKU) which leads to much lower buying prices compared to conventional retailers. This means they can then sell their products at about half the price of national brands.
Consumers embrace this concept not only because of the irresistible value for money of the products, but also because hard discount stores are often convenient and easy to shop around, given the low choice complexity and quality assurance. Consumers save time and money – and they love it.
Did you know, Trader Joe’s average sales per square ft is about four times as much of that of Walmart?
With this strategy, hard discounters have become a real pain-point for almost every conventional retailer they encounter. In the UK alone, Aldi and Lidl have grown their market share in the last six years from less then 5% to 13%. The UK’s most renowned grocery retailers haemorrhaged sales and profitability collapsed. This scenario is now starting to unfold in the US as well. Every area where Lidl enters, other retailers must drop their prices by an average 10% to remain competitive.
What can conventional retailers do in response to counter hard discounters?
There are a number of defensive and offensive response that traditional brand manufacturers and retailers can adopt in response to the rise of hard discounters.
The defensive approaches consist of strategies that lead to lower prices either by accepting lower gross margins (fight back strategy) or by cutting cost (downgrading strategy). In Retail Disruptors, we identify areas where conventional retailers can claw back some of these price reductions through lowering procurement costs.
These retailers leave many billions of dollars on the table; although defensive strategies might be effective in the short term, they usually lead to lower operating margins, as most service-oriented retailers do not have a cost structure that comes close to hard discounters.
Conventional retailers can also follow a more offensive approach. This is more aligned with the DNA and strengths of premium retailers. By adding value without increasing the price (value improvement strategy) or being an innovative leader (value redefinition strategy) they can try to sustain the high ground and prevent themselves from fighting with hard discounters based on their mains strength: low prices. Companies such as Waitrose and Wegmans are good examples of retailers successfully following a more offensive approach.
The most important thing for any conventional retailer to remember, is to never underestimate the power of the hard discount concept. The stores may not look as slick, but they are very hard to beat. And if you can’t beat them, why not join them? Tesco recently did just that, by launching its own discount banner ‘Jack’s’…
More info? Buy our new book ‘Retail Disruptors’ and order it via Amazon, Bol.com, Kogan Page or any other digital book retailer!