German discounters Aldi and Lidl winning big in the UK

24 August 2017 Consultancy.uk

Aldi and Lidl have recently emerged as supermarket giants with their appealing prices, which has attracted customers to invest into budget supermarkets as opposed to the 'big four', consisting of the more mainstream supermarkets Tesco, Sainsbury's, Morrisons and Asda.

German discounters Aldi and Lidl are both internationally known for their low prices and private-label products. The two companies have recently experienced a record rise in their market share with an additional rise in customers, and the duo were not highly affected by price rises against economic slumps, as sales went up by 20% over the course of a year, awarding the German retailers with a 12% share of the UK grocery market as reported by Kantar Worldpanel. The total number of sales across the chains within the last three months increased by 3.8%. Over 60% of the UK population had paid either Aldi or Lidl a visit over the past 12 weeks leading to May 21st 2017, amounting to an estimated 1.1 million household increase from a year earlier. Lidl say the brand will continue selling between 1,550-1,650 products in order to sustain the low price range that the branch currently has to offer its clients.

Yet, despite their rise in popularity, the discounters still lag behind the other large grocers. However, in terms of market share the Big Four of Tesco, Sainsbury’s, ASDA and Morrisons have been consistently losing market share. Tesco is still in the lead with 27.8% of the market share, despite their minor fall of 0.5% in 2017. Statistics suggest a widespread fall in market share across all major supermarkets including 0.3% decrease for Sainsburys and a share slip of 0.2% for Morrisons, the supermarket that holds the greatest share and sales out of the Big Four.

German discounters Aldi and Lidl winning big in the UK

Because of the increasingly competitive market, each of the top shops has turned to cost-cutting measures to maintain profits recently. In March, Sainsbury’s declared it was to cut 400 jobs in stores, while another 4,000 workers would be facing changes to their working hours, including the scrapping of night shifts in 140 stores, as the grocer looked to run its customer-facing operations more cost-effectively. The chain will reach the end of a three-year plan to save £500 million in March 2018, but with chief competitors Tesco rapidly scaling back staffing costs, cutting 1,400 jobs in June, Sainsbury’s chief executive has said the company will then embark on a new programme in order to save the same amount again. Advisors from McKinsey will assist the supermarket in drawing up the plan.

Since the German discounters have been introduced into the US domestic market meanwhile, major American competitors such as Walmart and Kroger are also facing serious pressure as the grocers bid to undercut their rivals by as much as 20%. Lidl have expressed their desire to expand, promising a total of 100 openings by mid-2018 meanwhile, and both the discounters have focused only product branding, investing more into organic and gluten-free products in order to promote health living whilst also attracting more mainstream consumers. Aldi has declared to prop up 1,300 of its US supermarkets, promising an investment of $1.6 billion.

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