The Aldi effect: discounters growing against trend
Germany is the birthplace of the discount concept. From here, Aldi and Lidl have built their empire, other chains quickly adopting the formula. Germany has nearly 15,500 discount supermarkets. No European country has as many supermarkets per square kilometre, nowhere is the competition so intense. Aldi and Lidl are the market leader in Germany. Together, these discounters represent 37 percent of discount supermarkets. Other major discounters are Tengelman's Netto (18%), Penny (11%) and Norma (4%).
In October 2013, German periodical Focus published the growth expectations of Aldi and Lidl for years to come. Worldwide sales of Aldi will grow from 56.8 billion Euro in 2012 to a prospected 65.8 billion in 2016, an increase of 15.8 percent. With Lidl, the growth rate is even higher. Coming from 54 billion Euro in 2012 to 65.8 billion in 2016, i.e. 21.9 percent growth.
Aldi and Lidl are both in private hands. Aldi officially consists of Aldi Nord and Aldi Süd, both owned by the Albrecht family. Lidl is owned by Dieter Schwarz. Schwarz is the third richest man in Germany, after the two owners of Aldi Nord and Süd.
Aldi effect
In four ways, the discounters are very different from the traditional supermarket concept. For one thing, the range is noticeably smaller. Secondly, the number of branded goods is considerably lower, or even completely absent. The products are sold under a private label, whose quality is often comparable to brand products. In addition, the stores are relatively smaller, with less service offered. And perhaps the most important difference: the prices are lower.
During the recent years of crisis analysts used the term Aldi effect to describe changes in the spending patterns of consumers. The term is also applied in other sectors. Where the consumer is forced to cut down spending, he often opt for discounters. The Aldi effect is therefore the definition of discount and low-budget companies that are growing despite the crisis.
British price wars
The market shares of both Aldi and Lidl grew firmly in recent times. In Ireland, Aldi saw its market share grow by twenty percent to 7.4 percent of the market. The growth of Lidl was slightly more modest with eight percent, 6.9 percent of the market. Over the first months of this year, this growth continued. In the first quarter, the Irish spent 18 million Euro more. Aldi saw sales rise by 22 per cent, eight per cent of the market. Over the same period, sales of Lidl grew by twelve percent. Lidl has a market share of 7.6 percent, all at the expense of existing retailers.
In Britain, the advent of German discounters has led to a price war. The growth, again, comes at the expense of the market shares of the other major UK supermarkets: Morrisons, Asda, Tesco and Sainsbury's. Tesco is the largest player with a market share of 28.6 percent, which was 29.7 percent a year earlier. Asda had 17.4 percent, Sainsbury's and Morrisons 16.5 percent 11.1 percent of the market. Aldi and Lidl are relatively small players with 4.6 and 3.4 percent of the market respectively.
Still, continuing expansion of discounters on British markets are enough to worry the conventional retailers. Morissons for one, slashed prices in a bid to win back customers. The supermarket chain saw revenues decline last year and recorded a gross loss of £ 176 million. The management called the current situation "the biggest crisis since the '50s." A price war between other retailers was the result.
“Retailers have themselves to blame”
Cathy Barnes, professor of retail innovation at the University of Leeds, concludes that traditional supermarkets themselves have played a role in the rise of the discounters. "The four big supermarkets have become victims of their own success," said the professor in the Yorkshire Post. "They have trained consumers to buy on price rather than brand. That has been so successful that there are people who only buy laundry detergent when it is on offer, regardless of what brand, if the price is right. As a result, consumers are less loyal. They buy where the price is best."