Europeans warm to discount supermarkets

By Anita Awbi

- Last updated on GMT

Related tags Wal-mart Supermarket

Discount retailing is still on the rise in Europe, as international
expansion and increasing consumer acceptance are set to push sales
up 36 per cent by 2010.

According to a new report by Planet Retail, the discount format continues to gain popularity and acceptance, despite a relatively slow start for Aldi, Netto and Lidl when they expanded from their Northern European bases in the 1990s.

The change in attitudes across Europe towards the budget format has been the result of an ongoing process by retailers investing heavily in marketing, new store formats and broader product ranges.

"Discounters have broadened their appeal, shifting away from the lower income consumers that they originally catered for,"​ said Planet Retail's Matthias Queck.

"Even in highly developed Western European markets there seems to be room for discounters to gain market share,"​ he added.

Although the vast majority of customers still prefer standard supermarkets they are increasingly on the lookout for food value, and price at store level is becoming more important than individual product price.

Grocery think-tank 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.

In Britain, budget supermarket chains look set to take a 10 per cent slice of the UK's £90bn (€131.9bn) grocery market over the next decade, according to Allegra Strategies retail consultancy.

It forecasts sales will surge 86 per cent in the next five years to £5.6bn, snatching business from established low-cost rivals Asda and Morrisons.

Lidl and Aldi are busy expanding across the UK and mainland Europe, and Allegra predicts that by 2010 the number of stores the two operators have in Britain will jump from 700 to 1100.

However, 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 own 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.

Still, it's the discount giants Aldi and Lidl, whose large profits allow them to finance their expansion from cash flow, that are leading the way.

Looking ahead to 2010, Planet Retail predicts budget retailers are likely to experience the biggest increases in market share in Central and Eastern Europe, albeit from a low base.

"Given that discounters are increasing their penetration in markets right across Europe, focused discount formats are a powerful means by which mainstream operators can fight back,"​ said Queck.

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