Tesco’s change of heart & why the Big 4 will recover lost ground on the discounters

Monday 12th October 2015

Everyone assumes the discounters are here to stay, but it is not that simple. The reason I say that is that the discounters’ scope for growth is limited by the USPs which make them so successful at present. The two rising stars, Aldi and Lidl, have smaller units and fewer SKUs. Aldi sells around 1,500 SKUs whereas a Tesco did, until recently, sell around 90,000. Yes, to a great extent, Aldi and Lidl are cheaper and the main reason for price difference is that somebody has to pay for the space which goes with offering consumers a lot of choice. Aldi and Lidl offer a limited choice, although it should be said not necessarily limited quality.

But Aldi and Lidl’s low number of SKUs and their slow entry into online is what could allow the big 4 to catch up. Data suggests a lot of consumers currently shop at both Aldi or Lidl and another grocer. As Tesco has quickly realised by slowing its SKU cull, shoppers will go where they need to, to get their favourite products. This could mean a customer who is unable to buy one product takes their entire shop to a different retailer. This is not too damaging to Aldi and Lidl at present, because shoppers are prepared to shop around and bricks and mortar grocery shopping is still leading the way, but the market is changing and I think quicker than people realise.

Online grocery shopping is the way the market is moving. Around 11% of us, according to IGD, order our groceries online (so every week or there abouts) and it predicts more than 30% of us will do so by 2019. ShopperVista say one in five of us order groceries online each month. That figure is growing quickly. Kantar Worldpanel pointed out for the 12 weeks to 21 June 2015 discounters, predominantly Aldi and Lidl, were growing at a rate of 7.7%, but online is up by 15%. As the recent property write downs from all the major retailers illustrate (although Asda’s was not as notable), big stores do not hold as much value as they used to. This is because consumers are moving more and more towards online and top up shops. And that is exactly why the big 4 have an advantage and could easily recover market share. The big 4 already have a presence in online grocery retail and, with their extensive range of SKUs, those retailers also have ability to deliver all the products a customer would want in one go. Aldi and Lidl do not have that to offer.

Aldi have said it will start selling wine and non-food online. It recognises, however, that it may never sell food online. Arguably, Aldi and Lidl can’t because the more those retailers drift towards that market and expand their sku count, the more the so called ‘discounters’ will stray into the big 4’s territory and sacrifice what makes them appealing – price. Indeed, Aldi’s chief executive for the UK and Ireland, Matthew Barnes, has said it “wouldn’t do anything to endanger [its] model or threaten [its] cost base”

So, unless Aldi and Lidl decide selling food online is workable and they can persuade customers it is worthwhile taking two deliveries, progress could slip and the big 4 may recover lost ground. Or, Ocado/Amazon will come knocking and point out that it could offer shoppers the ‘discounters’ value and the big 4’s SKU count.

For more information in relation to GSCOP or supply contracts or online terms and conditions, contact our retail experts, Mark Jones on 0113 227 0297 or at mark.jones@gordonsllp.com or Andy Brian on 0113 227 0354 or at andy.brian@gordonsllp.com.