Member Article

James Russell, commercial director for Rowan, looks at the growing popularity of discounters in the UK

With discount retail rarely out of the spotlight, it should come as no surprise that Aldi has recently announced an £185million investment to open an additional 50 stores in the UK or that Poundland also has plans to extend its UK presence with an extra 1,000 sites.

Other changes have been happening below the radar. There are currently more than 1,500 independent high street discounters, who together have 22 per cent of the market. This segment is also experiencing a boom – but because they lack the brand recognition of Aldi, Lidl, Poundland et al, their rise has been less noticed. There is even a nacent online discount sector, with roughly 350 websites and counting.

So why is discount retail so popular? One theory is that we have been through a tough economic period, and household incomes have been squeezed. But the truth is more complicated. According to research we undertook with the IGD, 77% of discount shoppers are from ABC1 demographic groups – the people most likely to afford to shop in big multiples even after their disposable income takes a hit. Moreover, 85% of shoppers plan to use the discount channel “after their personal financial circumstances improve”, indicating that something other than cost is encouraging the public to shop in these stores.

We believe the change is down to two factors. Firstly, we are seeing a change in the way people shop. A combination of relatively high petrol prices, a desire to bargain-hunt and the growth of convenience stores has led to an increase in the proportion of shoppers who visit a range of shops rather make a single weekly trip to an out-of-town supermarket. In March this year, for example, 45 per cent of shoppers visited two or more grocery stores in the same trip. These trends have benefited discounters, who tend to be in convenient high street locations. Some shoppers take the portfolio approach further and engage in “treasure hunts” – visiting a selection of stores in the hope of stumbling across a bargain. This is another change to the traditional retail model – and neatly plays into the hands of discounters.

Secondly, discount retailers have upped their game. Many discounters either stock the same brands which are available at large multiples, or have own-label products which are the equal of those you can buy at Sainsbury’s, Tesco, Waitrose and Morrisons (this year Aldi was the top UK supermarket in a taste test organised by industry bible The Grocer). In other words, shoppers forced by the financial squeeze to visit cheaper stores have discovered that the food there tastes just as good. However, it’s not just about the products. Discounters have improved their in-store experience, their range of products (Aldi has recently begun stocking lobster), and the service they provide (B&M have begun a supermarket-style bagging service). As a result, they are starting to compete across the board.

So how far can discounters go? The short-term signs are good: our research indicates that the discount channel was worth £7.5bn in 2012, and will be worth £12.4bn by 2017 – an increase of 65 per cent. 26 per cent of shoppers intend to use more food discounters in the next year. It is possible that the discount market will hit a natural ceiling and will not challenge the overall dominance of the “big 4”. But it’s also possible that we could be seeing the beginning of a long-term cultural shift in the way the country does its shopping, and that heading to the local discounter to buy goods could be as common as heading to Sainsbury’s, Waitrose, Morrisons or Tesco

This was posted in Bdaily's Members' News section by James Russell .