According to research from Kantar Worldpanel, a firm that describes itself as the world leader in consumer knowledge and insights based on continuous consumer panels, discounters Aldi and Lidl posted sales growth of 16.6% and 11.3% respectively over the last 12 weeks.
Growing market share
Such growth is something big to worry about, especially if we are invested in Tesco (LSE: TSCO), Morrisons (LSE: MRW) or Sainsbury’s (LSE: SBRY).
The overall market grew sales by 0.8 percent over the period compared with a year ago, but that didn’t benefit the so-called big four supermarkets, which includes Asda, who all saw sales fall.
Kantar reckons that Aldi’s market share has grown to 5.6% and Lidl’s to 4%, so a 9.6% share of the UK grocery market between the two. This is something we should give our full attention.
Meanwhile, grocery deflation came in at 1.6%, marking the score in one area of the supermarket battleground.
For years, in my view, the big four supermarkets built their profits by charging too much and giving too little. Aldi and Lidl now lead the charge by confronting both those issues. The formula is simple — Aldi and Lidl give as much as they can in terms of quality and quantity, and charge as little as they can — and they keep pushing at the boundaries to do even more.
The strategy is working
The formula works, and shoppers are warming to the attractions of Aldi and Lidl in a big way. I think we are seeing a new era in the supermarket sector. Things will never be the same again and the movement has caught the big four supermarket chains off guard.
I’ve thought for sometime that Tesco, Asda, Sainsbury’s and Morrisons will need to copy the business approach of Aldi and Lidl if they are to survive, let alone to thrive, in the new supermarket environment in Britain.
Of course, that means a relentless and continuous attack on costs, but the discounters’ secret weapon — the one that’s proving so effective — is a focus on customer-pleasing quality. Aldi appears to lead the way on that issue, which could be why the firm’s growth figures beat Lidl.
Aldi’s approach is to eschew leading brands, offering their own-branded equivalents instead — the key is those alternatives are very good compared to what we’ve grown used to from the big four.
This is a race
The big four must get on with it. These figures from Kantar suggest they are falling behind in the race. Against Aldi’s and Lidl’s blistering sales growth, Asda’s sales fell 2.7%, Tesco’s declined 0.6%, Sainsbury’s eased 0.3% and Morrison’s shrank by 0.1%.
It’s easy to imagine customer migration to the likes of Aldi and Lidl growing exponentially as word of mouth proliferates. To me, the discounters’ market share figures already look like a significant threat that could presage a scrabble to contract amongst the big four — perhaps a race to the bottom.
There seems so much about the existing embedded cultures within the big four chains that needs to change, I can hardly imagine a positive outcome for shareholders at all.
