UK supermarkets chase discount pound

By Anita Awbi

- Last updated on GMT

Related tags Wal-mart Marketing

The launch of Asda's first hard discount store marks a new era in
budget grocery shopping as the 'big four' supermarkets compete with
discounters to attract price-savvy consumers.

The opening of Asda 'Essentials' comes as consumer attitudes to price are dramatically changing, according to a new report by the Institute of Grocery Distribution (IGD).

Although the vast majority of customers still prefer standard supermarkets, they are increasingly on the lookout for food value - which could herald a new dawn for the discount sector.

Price at store level is becoming more important than individual product price as consumers adjust their perceptions of value for money.

IGD claims "shoppers are becoming ever smarter by recognising and using their buying power, and in turn benefiting from the competitive retail environment,"​ adding that changing consumer attitudes indicate changing customer needs.

Until now, Britain's largest food retailers have fought it out on a product-by-product basis to get ahead in the highly competitive market.

Asda's 'Rollback' campaign and Tesco's 'Pricecheck' have traditionally been marketed on individual items, where certain retail prices are compared and matched or beaten.

But as consumers strive for a cheaper weekly shop, hard discounters and stores pushing overall value for money are likely to capitalise on this shift in attitudes.

Now 65 per cent of consumers cite overall store prices as a driver in product choice, up 10 per cent from three years ago. And 37 per cent claim they would buy more value items when faced with a restricted shopping budget.

Traditional supermarkets are now beginning to embrace the discount model to lower their own costs and satisfy consumer demand for cheaper goods.

US-owned Asda, currently Britain's number two supermarket, has opened its discount venture under the 'Essentials' banner, selling 95 per cent own label economy lines. More stores are planned this year.

Meanwhile rival Tesco is busy perfecting its discount retail format in Eastern Europe. And former soft discounter Kwik Save, which ran into financial trouble last year, is to be purchased by a private equity firm with some unwanted stores going to hard discounters.

Supermarkets willing to adapt to the budget format may be best placed to tap the rising 'discount pound' trend - capitalising on their favourable brand reputations to succeed.

So far, social stigmas and bad locations have held hard discounters like Lidl, Netto and Aldi back from securing more than a five per cent market share between them, despite being active in the British market for a decade.

But that's not to say the format is doomed.

Netto and Aldi are both showing signs of resurgence and adaptation - offering repackaged private label products and a greater selection of fresh produce.

They have indicated ambitious expansion plans, estimated at a cumulative growth from 837 stores to 1306 by 2010, amounting to a 56 per cent increase in store numbers.

IGD estimates an increase in turnover for the discounters from £3.5bn in 2005 to £6.2bn in 2010.

But the well-established supermarket chains still maintain the upper hand, as brand recognition continues to be a major influencing factor, and companies learn how to best attract the discount pound.

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