Grocery Insight have developed a 6 P model to best describe discount retailing in food, how it works, why it works and how both Aldi and Lidl drive their organisation to deliver high quality, low cost products.
1. The 6 P’s of Discount Retail
G r o c e r y I n s i g h t
N o v e m b e r 2 0 1 5
2. The6 P’s
Dev eloped by G r oc er y I ns ight as
a m odel t o analy s e Dis c ount .
This is t he dis c ount bluepr int f or
eac h t er r it or y t hey ent er – t hey
adopt a Cham eleon lik e s t anc e .
4. Provenance
T o o v e r c o m e t h e i n t r i n s i c l i n k b e t w e e n l o w p r i c e s
a n d p o o r q u a l i t y – l o c a l / n a t i o n a l s o u r c i n g i s v i t a l .
5. Provenance
F r e s h c a t e g o r i e s ( p r e d o m i n a n t l y o w n l a b e l ) a r e k e y f o r
d i s c o u n t – a s l o c a l s o u r c i n g i s p r e f e r r e d b y c u s t o m e r s .
6. Provenance
I t i s n ’ t j u s t s o u r c i n g ; p r o v e n a n c e e x t e n d s t o w e l f a r e o f
a n i m a l s – l o w p r i c e s m e a n g o o d w e l f a r e a n d g o o d
q u a l i t y i n d i s c o u n t .
7. Key Takeaways
P r o v e n a n c e
Local, National and Responsiblesourcing
The challenge for discounters is to
marry up the low prices with a high
quality item, locally and responsibly
sourced.
Discount work hard with the official
bodies and trade schemes – Red
Tractor Week for example alongside
adopting official welfare standards too.
Their advertising is the key element,
relentlessly advertising their
membership / usage of welfare schemes
and highlighting British meat.
9. PR / PublicRelations
W i t h i n t h e U K m a r k e t , A l d i a n d L i d l h a v e w o r k e d
e x t r e m e l y h a r d t o ‘ s h a k e o f f ’ t h e i r G e r m a n r o o t s ,
a l m o s t t o t h e p o i n t c u s t o m e r s m a y n o t k n o w .
10. PR / PublicRelations
L i d l v e r y r e c e n t l y a n n o u n c e d a p a r t n e r s h i p w i t h t h e
F o o t b a l l A s s o c i a t i o n t o s u p p o r t y o u t h f o o t b a l l , A l d i a r e
s p o n s o r i n g ‘ T e a m G B ’ i n t h e O l y m p i c s .
11. PR / PublicRelations
A n y a w a r d s w o n a r e h i g h l i g h t e d , b o t h i n s t o r e
a n d i n t h e m e d i a – r e l e n t l e s s l y .
12. Key Takeaways
P R
Momentum – Low price,high quality,localsourcing
Discounters have the enhance their
offer to remain compelling, however
within a limited SKU model – that’s
difficult.
So they relentlessly advertise any
awards that are won, almost as if the
awards are a surprise. Can be self
deprecating almost – ‘unbelievable’.
Wider PR efforts to enhance the reputation of
the chains – supporting Team GB, Grassroots
football and sponsoring ‘Pride of Britain’
awards help the wider profile.
14. Price
S i m p l e l o w p r i c e m e t h o d o l o g y – l i m i t e d S K U
a s s o r t m e n t , l o w p r i c e s = f a n t a s t i c v o l u m e s - > l o w e r
b u y i n g p r i c e s .
15. Price
L i d l o f f e r s o m e m u l t i b u y s w h e r e a s A l d i p r e f e r a
c l a s s i c ‘ e v e r y d a y l o w p r i c e ’ s t r a t e g y .
16. Price
‘ T r e a s u r e h u n t i n g ’ – P i c k o f w e e k i s S u p e r 6 b u t
i n L i d l – w i t h S p e c i a l B u y s o f f e r i n g d i f f e r e n t i a l .
17. Key Takeaways
P r i c e
Momentum – Low price,high quality,localsourcing
Low price is a huge part of the discounter
methodology, as important as the limited
assortments. The latest trend is premium
which is cheaper than larger rivals.
The comparison between own label
discounter lines and branded products,
with subsequent lower prices means
that customers can budget effectively.
That low volatility, alongside the absence
of promotions (bar Super 6 fortnightly on
Produce) means there is a great level of
stability in the prices customers pay.
19. PrivateLabel / Products
T h e r e a r e s o m e b r a n d s w i t h i n t h e a s s o r t m e n t , h o w e v e r
t h e s e p r o v i d e s e c u r i t y t o c u s t o m e r s . A l d i a r e g r o w i n g
t h e i r b r a n d e d r a n g e i n s t o r e .
20. PrivateLabel / Products
A c o r e p a r t o f t h e s t r a t e g y , h i g h q u a l i t y , l o w p r i c e d –
b r a n d e q u i v a l e n t l i n e s ( i n b o t h t a s t e a n d a p p e a r a n c e ) .
21. PrivateLabel / Products
D i s c o u n t a d v e r t i s i n g c a m p a i g n s h a v e b e e n i m p l e m e n t e d
t o h i g h l i g h t s i m i l a r i t y b e t w e e n b r a n d a n d o w n l a b e l ,
w i t h g r e a t s u c c e s s .
22. PrivateLabel / Products
T h e n o t e w o r t h y p r o g r e s s i o n i n t h e d i s c o u n t o f f e r i s t h e
e m e r g e n c e o f p r e m i u m l i n e s , a t l o w e r p r i c e s t h a n l a r g e r
r i v a l s .
23. PrivateLabel / Products
W i n e i s a n a r e a o f p r o g r e s s i o n f o r d i s c o u n t e r s –
s o m e r e a l l y s t r o n g o w n l a b e l d e v e l o p m e n t s a n d P R .
24. Key Takeaways
H i g h Q u a l i t y , L o w p r i c e o w n l a b e l .
Momentum – Low price,high quality,localsourcing
Imitation brands are all part of the
charm of a discounter, comparing the
discounter products versus the brands.
Discounter brands are extensively
advertised versus their branded
cousins, showing the customer that they
are equal in quality / taste.
Both discounters have developed
advertising campaigns, based on
customer feedback showing that there is
no difference in taste, only the price.
26. Place(Location)
D i s c o u n t e r s w o u l d l o c a t e t h e m s e l v e s n e a r a l a r g e r
r i v a l t o f e e d o f f s e c o n d a r y f o o t f a l l . E v e n t h i s s t o r e
h e r e i n B r a d f o r d h a s e x t e n d e d t o c o p e w i t h f o o t f a l l
27. Place(Location)
D i s c o u n t e r s a r e a l s o h a p p y t o b e o p e n i n g a d j a c e n t t o
e a c h o t h e r – c o m p e t i n g a g a i n s t e a c h o t h e r b u t t a k i n g
f o o t f a l l f r o m l a r g e r r i v a l s .
28. Place(Location)
L i d l a r e o p e n i n g s t o r e s i n G r e a t e r L o n d o n h i g h s t r e e t s ,
o p e r a t i n g a s m a l l e r s t o r e – r e a l e v i d e n c e o f t h e i r
p r o g r e s s i o n .
29. Key Takeaways
L o c a t i o n i s k e y , o r i s i t ?
Islocationeverything?
Often the discounters open near their
larger rivals, feeding off secondary
footfall – at least in the early days.
That location works for them now, with
the bulk of the shop (c.75%) and then
additional lines purchased at the larger
rival.
Upmarket locations are now being
targeted, with the smaller footprint of a
store able to fit in these locations.
31. Productivity
M i x e d c a s e s – s o l d a s ’ o n e ’ b u t t h e m a n u f a c t u r e r w i l l
p u t t h e v a r i a n t s ( 3 f l a v o u r s ) w i t h i n t h e o n e c a s e .
32. Productivity
D i s c o u n t o p e r a t e w i t h a l i m i t e d r a n g e , r e d u c i n g
c o m p l e x i t y a n d s p e e d i n g u p t h e b u s i n e s s .
33. Productivity
P r o d u c t s a r e t y p i c a l l y w i t h i n s h e l f r e a d y c a s e s ,
e n a b l i n g o n e t o u c h r e p l e n i s h m e n t .
34. Productivity
W i t h b u l k p a l l e t s u s e d f o r l a r g e r , h e a v i e r i t e m s t o
s p e e d u p r e p l e n i s h m e n t a n d m a i n t a i n a v a i l a b i l i t y .
35. Productivity
T h e f r o n t e n d / c h e c k o u t s a r e v i t a l t o e f f i c i e n c y , w i t h
c o l l e a g u e s s c a n n i n g 3 0 + i t e m s p e r m i n u t e , c u s t o m e r s
p a c k a w a y f r o m t h e c h e c k o u t i t s e l f .
36. Productivity
I n n o v a t i o n i s v i t a l g i v e n t h e h i g h t r a d e l e v e l s f o r
d i s c o u n t i n t h e U K – s e l f s e r v i c e c h e c k o u t s a n d b e l t
d i v i d e r s ( a l l o w i n g a c u s t o m e r t o b e s e r v e d w h i l s t o n e
p a c k s ) a r e u s e d .
37. Key Takeaways
P r o d u c t i v i t y
Lowest cost to serve
Productivity is everything to discount,
their model relies on a quick turnover of
stock, a low cost to serve and tight
margins to deliver profitability.
Everything is measured and aligned in
discount retail – each line has to justify its
inclusion into the range. Aldi have started to
grow the range which can affect the overall
discount model.
Aligned to this are the efficiencies
around display with bulk pallets and
shelf ready packaging. Alongside a well
trained, hard working team in store.
38. DiscounterOverview
6 P ’ s b u t a l s o d i s c o u n t i n 6 w o r d s
Momentum – Sales
growth is with
discount.
Convenience – small
store size means ideal
for top up.
Fresh – Doing a
strong job on Fresh
Foods and Meat.
Operations –
Formulaic business
but Aldi complicating.
Rivals – No one has
yet grasped how to
defeat discount in the
mass market.
Netto – ‘new kid on
the block’ – future
growth possible for
them?
Discount in 6 words
39. Thank You
G r o c e r y I n s i g h t
N o v e m b e r 2 0 1 5
