Is there a limit to the growth of the discounters?

Published 26 March 15

Aldi and Lidl have been successful in going mainstream in the past five years, enticing an ever greater proportion of mainstream shoppers into their stores. The proportion of shoppers using these stores at least monthly has increased from 37% to 54% between 2010 and 2014 according to IGD. Aldi and Lidl together now account for 8% of the GB retail market. While it is impossible to accurately quantify the future growth of hard discounters in GB, there are some indications of what trajectory discounter growth might take.

In their home market of Germany, discounters such as Aldi and Lidl together account for around 37% of the grocery market share with 85% of all shoppers using Aldi at least once a year. However discounter growth has stalled in Germany, despite less competition from large multiple retailers compared to GB, suggesting a natural growth ceiling.

In France, the discounters’ share of the market reached a high of 14% in 2009 when the proportion of shoppers using hard discounters reached 73%. French supermarkets reacted to this threat by becoming price competitive and the discounters’ market share subsequently dropped to its current level of 12%.

GB is a tough market for the discounters and most retail market analysts do not foresee them reaching a similar market share to Germany. However, rapid investment and expansion plans have led to an expectation of 11% annual growth between 2013 and 2018, resulting in a potential market share of 15%-20%.

To support this growth, hard discounters are looking to gain share by increasing average shopper spend through trading up. Aldi in particular has seen an opportunity to expand its premium British sourced fresh produce offering - meat, dairy products, fruit and vegetables with some stores opening in-store bakeries. Latest 52-week Kantar data shows that Aldi and Lidl have strong growth rates and are overtrading in these categories at a time when the overall market volumes are static or in decline.

discounter market share by volume

There are some limitations in how far discounters can mimic the large multiples before diluting the strength of their low cost model. They risk losing share to other discounters if they move too far away from their original credentials and also have no share of the growing online grocery channel. Similar to what occurred in France, mainstream British retailers are increasingly responding to the threat of discounter growth by refocusing their pricing strategies. Morrisons have launched ‘Match and More’ while Tesco, Sainsburys and Asda have reduced prices on everyday product lines. However, it is unclear how well large multiple retailers can compete with the discounters on price without a change to their business model.