October / November 2019 – Where will the growth in retail deli come from? The attention being paid is to the benefit of using high service deli as a differentiating factor. There are indications, however, that the growth will come from more mundane efforts.
The British newspaper, The Daily Telegraph, reported on the latest grocery retail market share statistics in the United Kingdom:
Aldi and Lidl have raked in an additional £1bn in sales over the past year as more shoppers desert rival supermarkets.
The German discounters have been luring middle-class customers from the likes of Waitrose and Marks & Spencer as well as the “big four” in recent years by selling products such as manuka honey and less expensive lobster.
The two chains now have a combined 14 percent of the grocery market as they continue to open stores across the UK. That is 0.8 percent higher than last year and the equivalent of £1bn in sales, according to research firm Kantar.
They have recently overtaken Co-op and Waitrose to become the fifth and seventh-biggest supermarkets in Britain.
None of this is a shock. Aldi entered the UK market in 1990 and Lidl in 1994. The stores have evolved. Though the basic concept—small format, private label, deep discounter—has remained, the references in the article to manuka honey and lobster point out that the understanding of what discount means has evolved. It is not just, or even primarily, a matter of price; it is about great prices on the products people want.
Though many discount operations do tend to serve lower income people, the sweet spot in the market is discounting products for the middle class and affluent because these people have money to spend! In that sense, deep discounters differ more in format than substance from, say, Costco.
While the stores have been changing, consumer perceptions also changed. If consumers were a little ashamed to be caught shopping at a discounter, now they are perceived as intelligent people.
The transition has been gradual. As the stores changed, people’s perceptions of the stores also changed. Economic fluctuations added to the transition. During the so-called “great recession” of 2008, many consumers who were suffering some hardship tried stores such as Aldi and Lidl for the first time and found them perfectly satisfactory. When they got their jobs back or hours restored, they continued shopping at deep discounters.
What is fascinating is how the big chains, fully aware of this growing threat, never really responded. It wasn’t until the last quarter of 2018, after almost two decades of watching Aldi’s market share grow, that Tesco opened Jack’s, named after Jack Cohen, Tesco’s founder, as a competitor to the discounters. Even then, it is a kind of half-hearted effort, opening stores in locations that failed for Tesco and opening slowly only 10 small stores in the last year.
Of course, we shouldn’t be surprised. In America, Walmart opened supercenters across the country and no major supermarket chain thought they should launch supercenters of their own for many years. Even when companies, such as Kroger, purchased supercenter operators, such as Fred Meyer, they failed to roll them out across the country.
In both the U.S. and UK, the focus of retailers was on trying to use existing assets in a way that preserved their business. So, you wound up with bizarre efforts, such as private label programs that were designed to be as cheap as the discounters but put in the ugliest packaging possible so existing customers would not be tempted to trade down.
We have every reason to think that Aldi, Lidl and similar concepts will continue to grow in the U.S. Perhaps more than any other department, this poses a challenge for deli/retail foodservice. The excitement in the field is fresh foods, with countless fresh food offerings, such as olive bars, wings and more.
Of course, this is exciting and delicious, but it also is high service, which means high labor, which means affluent areas and higher price points. Yet if the growth is going to be in the U.S. as it has been in the UK—with discount operations selling good quality food but at value prices—it may turn out that the growth in deli will be high quality, but prepackaged foods.
In order to stay competitive on price, the focus has to shift to new packaging technologies and new ways to offer high quality food at lower prices with less service. If the market share growth at retail will be from deep discounters, retailers need to be thinking about how to respond while vendors think about how to supply. DB