The success of French retailers instopping the advance of discounters in the last five years shows away out of the crisis embroiling Britain's "big four"grocers. Their simple formula: fewer complex promotions and big pricecuts across the board.
In Britain, Tesco, Wal-Mart's Asda,Sainsbury and Morrison are all losing shoppers to discounters Aldiand Lidl, which have grown market share to over 8% from 5% in2012.
France, meanwhile, is the only country in Europe wherediscounters have seen a significant drop in market share, slipping to11.9% in the second quarter of 2014 from a 2009 peak of 14.9%,according to Kantar Worldpanel data.
French retailers managedto turn the tide after a law change in 2008, which allowed them tofreely negotiate prices with suppliers, prompting cooperative Leclercto go on the offensive, followed in late 2011 by market leaderCarrefour .
The French grocers expanded their budget productlines, cut a proliferation of promotions, simplified own brand rangesand worked with suppliers to slash prices of branded goods.
Theinevitable squeeze on margins was easier to stomach for the likes ofLeclerc, a cooperative of independent store owners, and family-ownedAuchan than for listed groups Carrefour and Casino , which are underpressure to deliver short-term returns to stock market investors. ButCarrefour and Casino were eventually spurred to follow suit by yearsof underperformance.
A basket of budget own brand goods is nowabout 13% cheaper at a French hypermarket than at a discounter, whilea basket of branded goods is only 5% more expensive at Carrefour thanat Lidl, compared with a 20% premium in Britain, according to datafrom LEK Consulting.
"British supermarkets must focus onprice - they have a big gap to close. Today, a basket of similarbranded goods at Tesco costs over a fifth more than it does atCarrefour," said Jonathan Simmons, LEK Consultingpartner.
Discounter Decline
While Aldi and Lidl areplanning dozens of new openings in Britain, discounters closed about150 stores in France in 2013. Lidl has slowed its expansion in Franceand Spanish discounter Dia is exiting the country, selling itsloss-making Dia France unit to Carrefour in June.
The declineof the discounters was also driven by a big roll-out of conveniencestores by the major French chains as well as their investment in newpick-up points for collection of online orders, moves also alreadyafoot in Britain.
It took time for price cuts to translateinto improved performance for Carrefour, with hypermarket sales onlyreturning to growth in the third quarter of 2013, while at Casino,which started cutting prices at the end of 2012, Geant hypermarketsales were back to growth in the first quarter of 2014.
Andit's been painful too. French grocery operating margins fell toaround 3.8% in the last 12 months, down from an average of 4.9% inthe last five years.
Moody's predicts operating margins of theUK "big four" will fall to an average of 2.5% over the next12-18 months -- around half their historical average -- from around3% now, as Aldi and Lidl approach 10% market share.
But theFrench have mitigated the pain by forcing some of it onto suppliers.Seeking to match the global buying might of Aldi and Lidl, Casinoannounced a deal this month with Intermarche, a chain of independentstores, to jointly negotiate better prices with suppliers. Auchan andSysteme U, France's fifth and sixth biggest grocers, have also agreeda purchasing alliance.
According to research institute IRI,prices of French "fast- moving" consumer goods fell 1.7%year on year in August, and Leclerc sees no let up in thepressure.
"We are in a deflationary trend that is goingto last," CEO Michel-Edouard Leclerc told Reuters in a recentinterview.
By taking the fight to discounters on price, themid-market stores have put them in something of a dilemma.
Lidlhas responded in France by moving upmarket, sprucing up stores,introducing fresh bread and other products and brands, a strategy ithas also adopted in its home market of Germany.
Germanshoppers, who in 2008 spent 45% of their grocery money at Aldi, Lidland other discount chains, have shifted to mainstream supermarkets asthe economy has picked up. The market share of the discountersslipped to 43.4% in the first five months of 2014, according toresearch firm GfK.
But discounters risk losing their costadvantage as they seek to match supermarkets on range and storeappearance.
"This is a difficult exercise as they cannotentirely ditch the codes of the discount sector. They must widentheir product offerings while offering attractive prices,” saidFrederic Valette, head of Retail Insights at Kantar Worldpanel.
Source: uk.news.yahoo.com
