Knowledge Bank Blog, Channel Execution

The Rise of the Discounters.

Why Less is More.

One of the biggest UK grocery retail trends in the last couple of years has been the rapid growth of Discounters.  Latest figures show that Lidl are growing at 20.9%, whilst Aldi are growing at 36.1% – a new record.  There are a few reasons that explain why Discounters are winning.  Price is clearly one of the most important ones.  However, we think there are a number of other factors at play.  One of the biggest is the way that Discounters are radically simplifying the shopping experience.

We are living in a world of choice proliferation, a world of ever increasing promotional intensity, a world of multiple price tiers in categories.  In theory all this choice is great for the shopper.  However, in practice it makes the shopping task much harder.  It makes choosing the right product harder.  And it makes judging value harder.  So, as most retailers expand range, launch more products at more price points, and run more and more promotions, Discounters have taken things in the opposite direction and have massively simplified the shopping task.

So, what are they specifically doing?  Well, they provide an edited choice.  The limited range in each category makes it much easier to find products, much easier to compare between products and therefore much easier to make a choice.  Importantly, after making the choice the shopper has much less angst about whether they have bought the right thing.  If it’s the only choice, it’s a good choice.

They run minimal promotions.  In one of the Big 4 supermarkets last week, there were 45 promotions in the Biscuits aisle, covering over 100 SKU’s.  In Aldi there were none.  In the Big 4 supermarket there were numerous promotional mechanics, many of them multi buys with different levels of discount.  In Aldi there is just one mechanic – a price discount.  In Aldi a yellow barker = normal price, a red barker = lower price.  It’s incredibly simple.  Why have Pound Stores taken off in recent years….? The price point is beautifully simple.

The smaller average store size also helps.  You can bet that the average Discount shopper sees a much higher % of the products available in the store than the average supermarket shopper.  This means less searching for products and more engaging with products.  And more engaging, typically means more purchasing.

It is interesting that the winning channels in the market are the ones that are the easiest to shop.  E-Commerce and Convenience also play to this trend.  Trekking round a superstore increasingly looks like hard work in comparison.

Behavioural science tells us that our brains like things to be easy.  This means we are most likely to do the things that are easiest to do.  So, by radically simplifying the shopping experience, Discounters are not just operating a really efficient business model, they are also tapping into a fundamental psychological principle.  Less really is more.  No wonder they are winning…

Have a great weekend.  Speak to you next week.