The discounters have had quite a year - and this Christmas they are set to pile more pressure than ever on the Big Four grocers.
What a year the discounters have had. Not only are the sales growth of both Aldi (35%) and Lidl (20%) eye watering, but every time the woes of Tesco or Morrisons are commented on in the public domain the discounters are explicitly referenced.
More and more customers are visiting and are liking what they see – the stigma of shopping at a discounter has gone. Aldi have taken the opportunity to pledge aggressive expansion plans totalling £600m of investment. Even the prime minister dropped into the Aldi Warwickshire HQ this week to see what all the fuss is about.
How do you build on that?
Well, Christmas has provided the perfect opportunity to heap even more pressure on their rivals. The discounter business model is simple – they offer limited ranges of quality own label products at discounted prices. They are able to discount so effectively as a result of both the buying power they are able to achieve across these limited ranges and by minimising operating costs in their no-frills operations. Christmas brings these buying factors - quality and price – to the front of customers’ minds.
What’s on offer?
Aldi’s Christmas range this year is its most ambitious yet. Picking up the high quality Christmas brochure at my local Aldi, I was astonished by what was on offer. A Serrano ham leg for £44.99 – a Serrano ham leg from a discounter! Amur Beluga Caviar at £9.99, 30 year old Tawny Port at £29.99 and an ‘exquisite collection’ of wine all below £10. The Good housekeeping magazine (that bastion of middle class taste) said Aldi’s festive food could rival Marks & Spencer. The Lidl TV advertising campaign features premium products such as lobster and mini stollen being served to people in a festive blind taste test Christmas meal. The clear message being that the quality matched both M&S and Waitrose.
Quality message
What is interesting about the products that the discounters are shouting about is that they are all from the top end of their respective ranges. The Christmas battle will not be won or lost by the sales of these goods but through footfall and sales of mainstream lines. However, the discounters are famous for their low prices – those customers looking to save cash on groceries to stretch their monthly income to pay for other Christmas purchases will visit them anyway. These Christmas campaigns are about reinforcing their quality message to the marketplace and persuading those other customers who are looking for premium products for one-off events at Christmas. In other words they are driving a quality message to persuade customers who have never considered the discounters to visit them this year.
Customers rarely change their grocery shopping habits, but at Christmas many often do in search of value and/or interesting premium products. This strategic understanding of what drives customer behaviour is at the heart of the Christmas campaigns. Seasoned observers will know that this is not unusual as the discounters play this card every year. However, what is striking is their level of ambition and growing confidence. One thing is for sure, we should expect another bumper Christmas for the discounters setting up further erosion of the big four’s market share next year.
Charlie Foster is a senior manager at consultancy Boxwood
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