Discounter’s growth: current and future implications for the retailers, by Cristiano Corsini

 Discounter growth: current and future implications for the retailers

06

June, 2017

Discounter the most growing format across Europe Discounters grew up in Germany in a complex economic context after the Second World War “as a small-box, no-frills-at-all, cans-on-pallets store with no support from the stock markets whatsoever” (Planet Retail, 2016) .

1. Discounter: history 

The first discounter was opened in 1946 by the brothers Aldi (acronym of Albrecht and discount) in Essen (West Germany). The simple format got a huge success as any other developed distribution system was existing yet and after few time other stores were opened across all the country.

The power of this format was so strong that still today they are dominating the German market (and gaining shares internationally) without much space for alternative formats and retail innovations (e.g. convenience stores and online) which, in contrast, are growing in other large markets as France and the UK.

As of 90s discounters started the internationalization in important markets as France, Italy and the UK achieving great results almost everywhere (with the exception of France). However, their relevance across Europe is huge and forecasts expect a further growth in the future.

Top 10 countries in terms of FMCG online sales
Top 10 countries in terms of FMCG online sales

 [1] Sales forecasts (2016, 2017, 2018 and 2019) made by Techingrocery assuming a CAGR rate (France -2%, Germany +5% and the UK +21%)   

We can summarize the discounter’s growth through different development stages despite the high differences still remain locally among each country. The development stages (Table 1) below are based on the empirical experience of Italy.

At the beginning discounters changed the Italian retail business (still underdeveloped vs other leading Western European markets) introducing something was not existing at all as many shoppers faced the first time with a format where they could spend less to get the same basket size. When traditional retailers (supermarkets and hypermarkets) got an important market share drop, they immediately reacted introducing the same unbranded low-tiers items of discounts to serve the growing price-conscious shoppers share.

Secondly, they made the first private labels trade-up, improving the product and they consistently reduce for the first time the price of many brands (who traditionally lead vs retailers).

To replicate to hypermarkets and supermarkets, discounters were forced to also trade-up their existing formats moving to soft discounts. Indeed, Italian shoppers vs German shoppers were less price sensitive and paid more attention to the product (they were more used to buy branded products) and to the service quality (the service counter presence was considered mandatory by most shoppers). For this reason, both Lidl and the other Italian chains launched this format with an assortment that was 15-20% less expensive than hypermarkets and supermarkets but that offered top brands (around 15-20% of the total assortment) and service counters (e.g. bakery and butcher).

As of 2009, due to the global economic crunch and the consequent household income drop, discounters consistently gained market share by increasing their power.

As a result, many discounters were forced to go back to the hard discount formula cutting prices and enlarging the unbranded and low-tiers items in its stores. Even though Lidl still have some brands in its portfolio, new players as Eurospin (probably) launched for the first time in Italy a grocery store with no brands and only private labels, but with the presence of service counters (bakery, butchery and fish shop). The launch and the success of this new “hybrid” formula can be defined soft-hard discount as attributes belonging to both formats are present. The success achieved by this format is shown on Graph 3 and 4.

As of 2009, due to the global economic crunch and the consequent household income drop, discounters consistently gained market share by increasing their power.

As a result, many discounters were forced to go back to the hard discount formula cutting prices and enlarging the unbranded and low-tiers items in its stores. Even though Lidl still have some brands on its portfolio, new players as Eurospin (probably) launched for the first time in Italy a grocery store with no brands and only private labels, but with the presence of service counters (bakery, batchery and fish shop).

The launch and the success of this new “hybrid” formula can be defined soft-hard discount as attributes belonging to both formats are present. The success achieved by this format is shown on Graph 3 and 4.

Top 10 countries in terms of FMCG online sales
Top 10 countries in terms of FMCG online sales

3. Implications for the all FMCG industry:

The rise of discounters created a massive disruption across the FMCG industry. The main changes are the following:

a) Moving from promotions to EDLP: the price war and margin erosion generated by discounters forced traditional retailers to also reduce and cut prices. From Germany this model has also affected other big markets as the UK and Italy, where all retailers (despite few differences) increased their communication based more on fixed low prices than promotions and offers.

b) New shoppers habits (from stock-up to top-up shopping): shoppers tend to buy less but more frequently due to the urbanization . The rise of discounters accentuated this trend and as a result traditional retailers forced to move to EDLP (see above)

c) Private Labels are more competitive: the rise of discounters but the need of shoppers to also buy qualitative items forced both retailers and discounters to trade-up their own brands. For manufacturers, this means a higher competition not only in terms of price but also in quality coming from retailers.

d) The rise of the e-commerce: in markets where online grocery is developed as France and the UK, the online has been an “army” that traditional retailers used to serve youngest generations (Millennials and Gen Z) who are massively moving to discounters and at the same time fight on price. The click and collect (especially in France) has been decisive to allow traditional retailers to be more competitive and stop the growth happened in other peers (e.g. UK). 

 e) Largest stores (e.g. hypermarkets) downsizing: the rise of discounters along with online forced many traditional retailers to rethink about the assortment of its largest stores. In this sense many hypermarkets chains consistently reduce their selling area by removing non groceries generating low rotations and low margins and subletting the exceeding space to noncompeting players to improve selling area efficiency or opening something different but more remunerative (e.g. own restaurants and cafes offering private labels fresh food and ready meals).

4. What’s next?

Future forecasts are unpredictable but (at least in the short term) we strongly think that discounters will continue to grow and to gain market shares in FMCG by also acquiring the share of less price-sensitive consumers.

However, in the medium and in the long term if discounters will not be able to trade-up again, with the rise of convenience stores and online in many markets (as it is already happening in France), it is not excluded that they will lose some shares if shoppers will benefit from economic recoveries. That said they will still keep some shares addressing to the more price-conscious shoppers.

On the other hand, in countries where the macroeconomic growth is still tiny and where retail is struggling to change as in Italy, we cannot exclude that the soft-hard discount model (even though with some upgrades ) will continue to rise and gain market share for more time vs the other Western European peers (as France and the UK).

As convenience stores and online can begin a relevant threat as in France, if discounters will want to remain competitive will be forced to adapt and their value proposition. Below some recommendations to let discounters to be more competitive in the future:

• Highest Quality in the assortment:

In markets (except Germany and few others in Scandinavia) where discounters are growing but are not still leading, they will be forced to adapt their assortment. Discounters in Italy, where the German hard-discount was not performing so much, after a while, have been forced to rethink and to modify their proposition, starting from the assortment.

Better shopping experience online and offline

If discounters will want to gain shares in markets where they are not leaders a better shopping experience is essential. For instance, in Belgium, Lidl discounter launched the possibility to charge the bike and the electric cars for free in one of its stores in Brussels (BCG, 2017). Other upgrades have been made in the UK, where still Lidl is now offering a faster checkout service and more flexible opening hours. Concerning the online with the rise of the e-commerce in many markets discounters will have to think about some propositions. In this sense, Aldi discounter launched in 2016 the e-commerce for wines and non-groceries items in the UK and Lidl has started testing its e-commerce in Berlin since December 2016.

• Keep price as the main competitive advantage being more efficient than the competition:

As discounter brand image is considered the price convenience all improvements and trade-ups will have to be made by thinking about it. To do as discounter brand image is considered the price convenience all improvements and trade-ups will have to be made by thinking about it. To do that discounter will have to identify strategies to keep costs down and high rotations. For example, it is important to plan the labor organization through job schedules aligned with deliveries or using internal processes vs external suppliers to develop private labels items (BCG, 2017).

Source:

BCG (2017), How discounters are remaking the grocery industry, April

Fung Business Intelligence Centre (2015), European Grocery Discounters: small stores, big threats? November

Mediobanca (2016), I maggiori gruppi italiani (2011-2015) e internazionali (2014-2015) della GDO alimentare, Area Studi Mediobanca

Nielsen (2016), Retail in Germany

Planet Retail (2016), Germany’s discounters – masters of survival

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How the French use online platforms for grocery shopping ?

How the French use online platforms for grocery shopping ?

Food & Digital JDN#Events

28

MARCH, 2016

On April 4th 2017, all the actors of the French FoodTech were set up at the Maison des Champs Elysees to share the latest news about the industry and grocery shopping.

The most eagerly awaited moment of the day was the presentation of the CCM Benchmark Institute study on Food & Digital in France.

Source: CCM Benchmark

What are the new online consumption practices in France, in 2016?

This online study is based on a panel of 1040 web users, released in December 2016 using the quota method of sampling. “Food & Digital study CCM Benchmark Institut”

Audrey Fauconnier, project manager of the panel in charge of the study, has provided us with full data about the new consumer behavior trends in 2016.

42 % of web users have already done their food shopping using an online supermarket.

 

Also, we notice that the top three products most purchased online by the web users, in 2016, are of the snacking and soft drinks type.

On the other hand, 43 % of web users have already made their food shopping on another online marketplace that is different from an online supermarket.

  • E-commerce dynamic for online grocery shopping.

Today, two trends stand out: 19% of e-buyers believe they will do more online grocery shopping in the future. In addition, 17% of non-e-buyers would be ready to try the online grocery shopping experience. In this way, the future outlook for e-commerce food shopping growth is optimistic.

  • Online grocery shopping: buying or not?

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Burberry, digital influencer for the retail grocery industry

Burberry, digital influencer for the retail grocery industry

Burberry; a disruptive brand to reinvent the rules of digital marketing

For more than ten years now, Burberry has reinvented their brand by placing a huge emphasis on the digital aspects of their marketing campaign.

Today, not only is Burberry positioned as the most powerful digital contender of luxury retail brands, but also worldwide. The strategy employed by Burberry is to create a “walk-in-web” mid-way between stores, event spaces and digital sales channels in order to cultivate a uniquely bespoke customer experience. In this way the customer proximity is reinforced. According to the annual report of 2015 / 2016, this strategy has been paying off; the brand witnessed a growth of 1-2%, from 7 % just two years ago. Also, the company saw adjusted profit before tax down by 376 million in 2012 to 421 million in 2016.

This year, the brand took first place in the fashion world’s Digital IQ Index”

Generation Millennials: primary digital target for Luxury and Grocery retailers

As Christopher Bailey, Chief Creative and Chief Executive Officer of Burberry, explains to us; the strategy “to go fully digital” was essentially motivated with the emergence of “the millennial generation” and sourcing new tactics to attract them.

Step by step, Burberry learnt how to speak the language of “Generation Y”, thanks to better appreciation of their interests and attitudes. [‘Millennials’ are a digital native generation with its own behavior in terms of social media usage, gaming and life priorities, using platforms and e-commerce websites]

As a consequence, it lays emphasis on certain keys aspects like product interactions, connection proximity with the customers, innovative social media tactics as well as also bold photography in order to reach the millennial generation.

On the other hand, Nielsen and Forbes reports announced the fact that the millennials are the retail grocery sectors’ most sought after audience, with $200 billion in annual purchasing power. They are currently considered as the most important grocery shopping demographics.

Burberry 1

At the moment, grocery retailers are satisfactory with digital marketing strategies, but it could be argued that they are lagging behind luxe fashion retailers.

Digital marketing: support for grocery retailers in order to get up close and personal with customers

Recently, some grocery stores are beginning to understand the value of online life. The objective isn’t to acquire, but rather to earn the respect and loyalty of these new consumers, who are the millennials.

To mention just a few examples, “Lawson”, in Japan, created a humanized communication on its website by inventing a virtual sales promotional character. “Whole Foods”, in the United States, focuses on having conversation with their consumer via twitter; 85 % their tweets are intended as responses to consumer queries.

The most strikBurberry 2ing example is arguably “Tesco” with the new concept of “frictionless grocery shopping”, which is called “If This, then That”. Technically-minded, the UK supermarket giant allows customers to arrange automatic grocery orders via Tesco.com. [IFTTT conditioning system connects all separate platforms whereby an action on one can automatically influence a reaction on the other].

This enables Tesco to respond better to the needs of its customers by greater proximity.

In this way, a person’s digital footprint can be used to successfully devise a digital marketing strategy. The online presence, personal approach and recipe websites are the most useful factors in achieving this. Besides, it is predicted that the grocery sector is likely to increase it’s advertising spend from over £720m in 2014 to over £900m in 2020. That is why the aim to develop an efficient digital marketing strategy is becoming more and more essential for grocery retailers.

Nevertheless, if they want to close the gap with luxury retailers; grocery retailers must be guided by the most successful brand in the field, such as Burberry.

 

7 of Burberry’s best digital practices which might be applicable to the grocery retail industry

  • Relation [Unicity-Product]

It is important to ensure continuity between the products offered in grocery stores and those that are available online.

That is why grocery retailers have to pay special attention to post regular photos and videos about the news products or innovations, cross-shared between Twitter, Facebook, Instagram and Pinterest. But also present a great interactive experience, allowing for the customizations of some products offered by the retailer.

  • Congruence between [Online and Floor]

Online-customer experience has to mirror the experience of being in-store.

In order to achieve this goal, a permanent connection with customers must be created.

One way to do this is the storytelling approach – to present the grocery store environment and products, showcase a romanticized feed of scenic moments with a playful yet elegant tone.

Another idea is to create a “Trench Campaign”. Thanks to a micro-site, existing customers can post their snaps buying their own favorite product. Users could comment, ‘like’ the content and share the snaps on Facebook, Twitter or Instagram. The advantage of this idea is that it makes the customers feel special, as if they are starring in their own personal ad campaigns rather than being mere spectators. Like a blogger, consumers can have the leadership to make discoveries for others customers and showcase personal preferences of products, sharing links to recipes or activities they like. Effectively, the chore of shopping can be transformed into an exciting task. Furthermore, the “Trench Campaign” can enhance the value of grocery retailers, the brands they sell and customer loyalty.

Burberry 3

                                           ” Burberry,  Art of the Trench

  • Innovative inventory management sharing across [In store and Online]

Why not go for an automized valuable inventory experience through which customers can order online and pickup in store or order in-store and have their items delivered to their home. This solution seems more convenient than just a simple pick-up grocery. Inventory sharing also resulted in significant decreased delivery times to customers.

  • Create a strong [CRM omni-channel]

It is crucial to use CRM data to analyse shifts in customer behavior. Catch-up a maximum of people on its CRM database and set-up a program of capturing new data for new customers in order to maximize the success rate of capturing a customer’s data once they enter a store.

  • Have it owns digital team [ Not outsourcing]

That’s why is necessary to create a strong team who influence the digital marketing way.

  • Surfing on the wave of [3D experience]

That gives more flexibilities and means to showcase their products on digital without sacrifing image quality.

 

The focal point to remember that Burberry did the success of its digital marketing will be to :Not be afraid to usurp well-established traditions and assumptions when it’s the right thing to do for the customer.”

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Mr Hema, the expert of freshness in box

Mr Hema, the expert of freshness in box

Gfresh & Mr Hema created a win-win partnership

Innovative tech companies and forward-focused businesses are constantly searching for and finding new ways to partner up. And the result, when the pairing is right [Gfresh & Mr Hema], is added convenience for consumers and increased efficiency and cost savings for enterprises. For tech companies, new partnerships provide a chance to expand platforms and increase their economic footprint.

The Revolution of Fresh Food Stores

Take Mr. HEMA, for example. While many people had doubts about whether or not an Online to Offline, or O2O, business model would ever take, JD.com, one of China’s largest e-commerce platforms, has turned naysayers around with these innovative brick-and-mortar stores. Mr. HEMA offers consumers freshly made custom meals, delivered in person in 30 minutes or less. And it can only do this by linking up with Gfresh, a seafood export platform, which can provide fresh seafood from around the world within 24 hours.

Now counting four “experience stores” Mr. HEMA locations are just as much showrooms as they are food shopping destinations. Conveniently located in shopping malls in Shanghai, Mr. HEMA stores carry dry goods and fresh produce and seafood. What puts them into a category of their own are the stores’ kitchens, staffed with employees ready to prepare food assembly-line style for customers situated within a five kilometre radius…similar to an automotive assembly plant, for food.

Mr Hema 2

Food service O2O isn’t exactly new, but the scope of menu items that Mr. HEMA stores offer certainly is groundbreaking. And, again, it wouldn’t be a feasible business model without a partnership with a company like Gfresh, in order to sustain a reliable supply chain. When fresh, not frozen, seafood from the other side of the world is on demand, it takes a company that can clear customs quickly, owns a fleet of refrigerated trucks and utilizes video inspection to ensure the product is dependable.

An ultimate goal; to provide the best service to the consumers

As such, the just-in-time approach to supply, as opposed to the just-in-case model, is necessary to adopt with this strategy. Since the kitchens in Mr. HEMA prepare orders as received, product runs on a fast turnaround. The sequence from the suppliers to transport (via Gfresh), into Mr. HEMA stores and onto customers’ plates happens at a speed unthinkable just a few years ago.

Fresh salmon, for example, is exactly the type of juncture at which the partnership between Gfresh and Mr. HEMA succeeds. Gfresh supplies the freshest salmon found in Shanghai, specifically because of the just-in-time model, coupled with its ability to provide accountability and efficiency at every point along the way. And Mr. HEMA is able to offer the freshest possible salmon to its customers in Shanghai practically on order, setting a new precedent and expectation for consumers.

As information is collected along the way and kinks continually ironed out, customers loyalty will build. Since customers’ only option is to pay with Alipay, checkout lines take on an anachronistic feel while collected information on preferences and trends allows the business to refine both its offerings and targets.

JD.com already soars above the rest when it comes to supply chain management, and moving forward with O2O operations like Mr. HEMA makes sense. It is necessary, then, for the company to deepen its alliance with fresh produce suppliers like Gfresh, so that it can deliver on its promises on time, every time.

Mr Hema 9

This article was written by :

Steve 1

Steve Williams

Engagement Manager at Gfresh

I am responsible for global marketing efforts for Gfresh, the world’s largest online seafood marketplace.

 

Gfresh, the next Amazon of the seafood market

Gfresh transforms the way seafood is traded

Gfresh – a Chinese start-up – was founded in 2014 and has been the source of the primary global marketplace for seafood. This platform delivers a new approach to selling and trading seafood with buyers, essentially in China.

“You have no more excuses to complain about the freshness of the fish.”

This idea emerged after a gap was identified in the retail industry, where most companies have already developed their own marketplace and app, in comparison with the seafood industry which seemed to be stuck in the Stone Age – that is until Gfresh came along.

gfresh

This online marketplace is providing a wide range of services such as:

  • Logistics
  • Customs clearance
  • Quality inspections and full traceability of products
  • Gpay (a safe pay system)
  • Real-time tracking
  • Door Delivery

The aim of the platform is to make the process easier for the buyers and sellers to avoid unnecessary and time-consuming obstacles during the shipment. The confidence of investors in the project has facilitated raising of $20 million from RiverHill Fund, an Alibaba associated venture company.

In order to meet their objectives to sell and transport live seafood efficiently, Gfresh set up an Android, iOS and Web app.

Gfresh seafoodThrough this platform, the fisheries can list their inventory with notes about the origin, species and quality of products, but also fix their prices. Furthermore, to ensure the product adheres to their unique selling point, the company has introduced a new innovative concept; when the live seafood is delivered to the buyers’ door, Gfresh records any potential issues about shipment such as dead lobsters or low levels of seawater via a camera that records the product as it is being delivered.

A disruptive platform to enhance  the proximity between buyers and sellers

Gfresh disrupts the channel distribution using threes approaches;

The first line of Gfresh’s strategy is to remove the middlemen, i.e. importer and exporter agencies. It allows a restaurant owner in China to buy small quantities of seafood directly from a producer. Also, it reduces the time for delivery, which enables consumers to eat seafood that always fresh. Therefore, a consumer in Shanghai will get fresh British Columbia oysters before the shelf life of seven days, which was near impossible before the birth of Gfresh.

A second line of the strategy includes an escrow payment system to ensure the buyers and sellers are protected. This system is helpful for smaller and artisan fisheries because they may not have the funds to travel around the world to reach future buyers or to protect themselves against fraudsters.

The next line of strategy is based on flexibility of order quantities. Currently, it possible for a smaller fishery to sell its limited productions without having to bend to exporting associates and pricing requirements.

China’s online seafood market: an untapped potential for global companies

Gfresh is placed at the crossroads of two markets in full growth, which are Chinese seafood market and Chinese e-commerce market.

According to the global Crustacean market report 2016-2020, we are excepting growth at a CAGR of 4.08% during the period 2016-2020. It estimates that the Chinese market will represent 35% of all seafood consumed globally in 2017 and will become the largest seafood market in the world.

On the other hand, Nielsen report announced the fact that online sales have contributed to 11% of total retail sales in China in 2016, but it is excepting a growth rate of 53% year over year. As of today, it is the largest e-commerce market in the world and also the most evolved.

Online seafood marketplace is a mass and niche market, but also a vital opportunity for global companies to penetrate. At the moment, Gfresh is the first company to make substantial profit in the Chinese seafood industry.

Gfresh seafood

The next step is to reinforce and maintain its ranking on the market. Consequently, they plan to strive for product initiatives for its online seafood marketplace, expand to new markets but also upgrade logistics supply chain service. The aim is to lead the Chinese seafood into a new step of development.

Gfresh on going into the global seafood market

Although the company is well-established on the Chinese online seafood market, Gfresh is planning major projects for the near future.

In order to satisfy the demand for fresh seafood, Gfresh aims to expand in other countries such as South Korea, Singapore, and Vietnam. Plans to expand in the US are also being considered after a number of US companies have shown interest in their services.

In the future, Gfresh would like to diversify into other industries with highly perishable, hard-to-ship inventory like fruit and other fresh food products.

Gfresh seafood