Rise of hard discounters to hit market share of large US supermarkets

19 June 2017 Consultancy.uk 5 min. read
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The rapid expansion of discount grocery stores is set to affect the market share of traditional retailers, with price sensitive shoppers from a range of consumer segments keen on low prices, while products stocked at the respective hard discounters tend to be perceived as of sufficient quality.

A new report from Bain & Company, titled ‘Getting Ready to Battle Grocery’s Hard Discounters’, explores the phenomenon of discounter grocers in the US market. The research is based on a survey of 2,800 shoppers across the US. The US market has, much like markets in wider Europe, seen the rise of discounter supermarkets in recent years – Aldi for instance, now has 1,600 stores in the US, with plans to add an additional 400 in the coming years; while Lidl is beginning operations in the country.

Aldi historically focused on smaller households

According to the study discounters are increasingly picking up customers from segments that tended to be more focused on traditional US stores. In particular, the firm found that for Aldi, the family focused and mainstream segments are increasingly turning to the store’s large number of deals.

Aldi, the report notes, is actively moving into the more mainstream market segments by investing in areas in which the segments reside – which is likely to create additional risks for traditional retailers, researchers finding that 61% of respondents said that they would try an Aldi if it opened nearby, while 71% said that they would try a Lidl.Shoppers haven’t tried Aldi due to lack of local stores

Pushing hard discounts

The research also sought to identify the primary reasons shoppers in the US have not tried an Aldi. Some of the reasons, the firm notes, are being addressed by Aldi through its current expansion project.

The primary reason for not having tried Aldi is a lack of awareness, noted by almost 40% of respondents. Not in my area was noted as a reason by around 30% of respondents, while the assortment was noted as an issue by 20% of respondents. Value and quality were noted as of issue by around 20% of respondents, while freshness, prices and prepared-food selection was noted as an issue by around 12% of respondents.

Traditional shoppers perceive Aldi as superior on top two criteria: value and price

According to the respondents, good value and low prices are the most important features shoppers, cited by 60% and almost 60% of respondents respectively. Around 50% of respondents convenient location and fresh produce.

The study went on to ask respondents about the perceived aspects that set Aldi out from the traditional retailers. Top of the list is good value and price – the latter in particular is found to diverge considerably from the shoppers’ perceptions of traditional retailers. The difference do highlight that Aldi tends to be perceived as offering low-level criteria in a range of other aspects – outside being about to get in and out of the stores quickly.

Regular customers keen on store brands

The rise of discounters risks eating into the national name-brand products’ market share, including that of discounters. The research aimed to identify in how far respondents believe that store-brands products are as good as, or better than, national name-brand products.

For the most part respondents across various traditional stores, mass stores and clubs agree that store-brands are just as good – while, when including those neutral to the proposition, the vast majority of respondents (at around 80%) agree.

Once they try Aldi products they tend to rate them highly across all categories

One area of potential concern for traditional retailers is that, once people have tried Aldi products, they tend to find them as good as, or better than, national name-branded products. For staples for instance, around 97% at least agree with the statement, while 95% agree with the statement for other dairy products. Canned food and nonperishables too was found to be strongly agreed to by respondents, at around 95%.

Respondents were the least keen on fresh meat / seafood, baby and pets and personal care, at 80%, 75% and 70% at least agreeing that the categories are as good, or better than, national name-brand products.

Kent Knudson, a Partner in Bain’s Retail Practice, and co-author of the report said, “Even the most faithful shoppers at traditional grocery stores are increasingly rolling out the welcome mat for these European imports. While this should be a wake-up call for U.S. incumbents, few seem to be concerned about the potential impact to their business, and even fewer are taking the broad range of actions necessary actions to address it.”