Where are Aldi & Lidl headed, profitwise?

Thinking back to the relative simplicity of the 800 SKU model, based primarily on surrogate label with a handful of anchor brands, coupled with low staffing levels and small outlets, it was relatively easy to beat the multiples on price and yet make adequate profits.

At that time, it was cost-effective to approach the multiples’ suppliers of private label, and piggy-back on key lines, without picking up origination and compliance costs.

However, now that the discounters are extending their ranges via more creative product introductions, it follows that they will need more expertise in terms of more support staff in R&D, Tech, QC, apart from picking up the burden of the usual ‘9 out of 10’ failure rate…

Furthermore, as they continue to grow share, consumer media will highlight any product defects, thus triggering the ‘tell a friend’ mechanism – 'if I like it, I tell one friend, disappoint me and I tell 10 friends…'

All adding further to the compliance overhead.

Given the fact that the mults continue to keep pressure on shelf prices, it follows that the discounters’ additional costs will dilute bottom line performance. Perhaps this will become an opportunity for an entrepreneur to re-discover the original 'hard discount' formula, and launch a competitor to Aldi & Lidl?

Leaving us all to ponder on where the legal responsibility for damage to consumers can be laid: retailer or O/L manufacturer?

Welcome to the high-cost world of ‘normal’ retail…

The supermarket war heats up the multiples' approach to media, too

Whilst the multiples’ reductions in media spend could mean everything is going into price, in practice significant monies are still being invested in driving us to our favourite store…

Essentially, Media Week reports that during the recession of 2008-2009, traditional grocers were among the best advertisers as consumers continued to buy food while cutting back elsewhere. But that has changed in that Asda, Tesco and Morrisons have collectively cut spend on press, TV, outdoor, radio and cinema by nearly £100m, or about a third, since 2011, according to Nielsen – although some of that has gone into online.

Meanwhile, Sainsbury’s doing better financially, increased its spend by 2% to £59m (More details in the Media Week article)

All of this highlights the fact that the mults are competing with one another on price for a diminishing share of the action, and need to do so via differentiation - own label - and increasingly instore via the shopping experience.

This has to represent opportunities for suppliers that are capable of, and prepared to service regional and even store-based assortments, tailored to local need, and optimised via tailored shopper-marketing initiatives…

Finally, the main causes of it all, those ‘downmarket, common, limited-choice upstarts’ Aldi boosted ad expenditure by 160% to £69m from £26m and Lidl by 275% to £83m from £22m.

A message for your marketing colleagues?
Given that any growth is being driven by Multiples own label and Discounters’ surrogate brands, it is vital that your marketing colleagues increase brand alignment with retail offer-communication, while you find non-compromising ways into Aldi and Lidl…