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There’s been a lot of talk recently about discounters like Aldi and Lidl taking market share from more traditional retailers, but there is a lot that both sides can learn from each other. From improving efficiencies through to appealing to consumers in new ways, each has their strengths, as well as opportunities to innovate with private label.
What can discounters learn from traditional retailers?
Discounters have had a lot of success to date through offering narrow private label ranges that significantly undercut those of traditional retailers, but are now learning that they need to diversify some ranges to appeal to new consumer tastes. Discounters are realising that some consumers demand choice in certain products, such as wine and other premium goods, and if they are not offered this choice they will just buy from another store. In the effort to drive further market share, discounters will be looking to appeal to new consumers for whom price is not necessarily the biggest driver behind purchasing decisions.
On the international stage, Aldi is spending over $3 billion on new US stores over the next 5 years and is opening its regional headquarters in Southern California, USA next year, looking to compete with established players like Walmart. In the US private label is still a small part of the market but consumers are used to bulk buying from out of town stores. While these consumers are more familiar with national brands, there is an opportunity to thrive and claim market share if discounters can compete on quality and price. Across the pond in Europe, discounters have been moving closer to residential areas where currently major retailers have the largest presence. The lesson they are learning is that some customers are time poor and just want to be in and out of the store and home with their goods in the shortest time possible. Discounters are also learning that there is more opportunity to target consumers looking for their weekly shop, rather than just those filling in for specific items or bulk buying once a month; and are changing their private label ranges to reflect this.
What can traditional retailers learn from the discounters?
The success of discounters has largely come from their unique logistics capabilities: being able to procure large volumes of each product they sell, drive down the unit price and pass savings on to the consumer while retaining decent margins. Traditional retailers have been struggling to achieve this themselves in recent years. Consumer loyalty used to be on major retailers’ side but, with increased global competition from discounters and online retailers, this is now wavering. This changing spending behaviour means retailers now have no choice but to reduce prices, which is shrinking margins and in turn is putting greater pressure on their suppliers. At the same time, increased competition in the market means that they have to be more strategic in the products that they offer. Traditional retailers now need to pick their battles and compete in other ways; such as creating an enjoyable shopping experience or offering better value for quality products.
Another reason for the discounters’ success so far has been their focus on the consumer, asking shoppers what they think rather than just marketing to them. Retailers can follow discounters’ style and make use of their relationships with customers by honing in on new niches, such as offering artisan products that appeal to specific consumer tastes. Improvements in product lifecycle management also mean that retailers can focus on developing these niche ranges while leaving value ranges to continue without much interference. Looking again to the US market, retailers with a strong portfolio of private label products have an opportunity to succeed, but need to do so in a targeted way. Focusing on quality can allow them to compete with established retailers, while niche ranges can continue to compete with discounters in foreign markets as they also grow their presence.
The current market is getting more competitive and private label is a particular hot spot, but discounters and retailers have a lot to learn from each other. In private label at least, there’s more than one way to sell a skinless chicken breast.
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