UK hard discounters face perception problem - Food Industry Report - public wary of quality at food discounters

Eurofood, Nov 21, 2002

The UK's 2.7bn [pounds sterling] hard discount sector is suffering a perception problem. Unlike Germany, where more than a third of the 200bn [euro] food market is hard discount, the fiercely secretive European discounters have struggled to get across their message of high quality at rock bottom prices to UK consumers.

The low-cost, no-frills operators have failed to communicate adequately because marketing has been mostly below the line and Britons struggle to grasp the idea that cheap does not necessarily mean inferior.

Poor communication is typical of the hard discounters. Thomas Jellum, managing director of Netto Foodstores, breaks the mould by occasionally speaking on the record in what is a highly secretive sector that usually like its products and stores to do the talking.

Jellum admits the problem is communication. "We have to show these are quality products at extremely low prices. Discounting is regarded as poor, bad quality, tacky, cheap."

It is a double-edged sword. If you spend money on advertising and PR you send out the wrong signals. The hard discount concept is all about keeping expenses to a minimum so the stores can undercut the main supermarkets on their limited ranges of 650 to 1 200 products, depending on the operator.

Jellum says it is a matter of time before the public understands the quality issue. "It's about being persistent. We communicate using the products we offer in the format we have."

The major UK's multiple supermarkets have learned that communication with the press results in free publicity, albeit not always in the form they would like. The hard discounters have not cottoned on to this yet and their attitude is similar to Sainsbury's and Tesco's in the 1970's and early 1980's.

Jellum argues the discounters have fewer weapons in their armoury and they are not about to reveal the ones they have got to the press: "As a multiple supermarket you do not have that reservation because you have lots of tools in the box."

Steve Gotham, senior retail analyst, at Verdict Research, said: "They have PR battles to face up to if they want to really grow their business in the UK. UK consumers are more discriminating about quality. It is about perception of their product quality."

Bryan Roberts, retail analyst at M&M Planet Retail, said: "There needs to be a series of small changes that remove the stigma of shopping in these stores. Tesco had to battle hard to win over Sainsbury's shoppers and Asda has only recently gained mainstream acceptance. There are still too many shoppers who would not be seen dead in an Aldi or Netto."

Aldi's website tries to push the quality angle. It talks about quality products and wide choice "that combine with prices that never fail to astonish first-time shoppers [...] Our stringent selection process enables us to offer our customers own- brand products whose quality matches that of leading brands."

The site also shows how Aldi, which only sells its own brands, is trying to offer something that little bit different in the non-foods arena, taking a leaf out of warehouse club chain Costco's book. Special buys from 7 November include a powerful telescope for 39.99 [pounds sterling], a 69-piece microscope for 14.99 [pounds sterling] and an interactive learning computer to 5-8-year-olds for 29.99 [pounds sterling].

This aside, the UK's hard discount sector has failed to live up to the hype that accompanied the opening of Aldi's first outlet in Birmingham in 1990. Aldi, with 266 stores, the sector leader throughout the 1990's, now trails Lidl on 340 and Netto stands at 129 with an opening programme of a store a month. KwikSave, for years, the face of discounting in the UK, has 704 outlets but is not a hard discounter like the new arrivals.

In the year to 13 October Aldi, Netto and Lidl held a combined 2.5% share of the total grocery sector based on till roll spend, according to Taylor Nelson Sofres. KwikSave had a 1.5% share.

Planet Retail UK puts all the discounters' share of groceries, as opposed to total till roll, including KwikSave, at 4.7%. Bryan Roberts, retail analyst, cannot see the sector topping 10% in the next 5-10 years. But Verdict does not see the hard discounters commanding more than 4% of the grocery market over the same timeframe.

Roberts said: "The big boys are too strong to let these upstarts take more share than around 10%. Tesco, Asda, Morrison et al are fighting hard on price and they have the breadth and service levels that the discounters do not have.

"Sites are running out and we are not suddenly going to get a Germany-esque situation of middle class mums parking up the Volvo and taking a quick spin round Lidl. She'll still be in Waitrose in 10 years' time. I cannot hear Asda or Tesco begging for mercy."

Market commentators believe one of the hard discounters will get knocked out of the equation, with the betting on Netto.

In the 12 years since Aldi first opened in the UK, a plethora of formats have come and gone. Gateway discontinued Food Giant in 1999 which, at its peak, had 41 outlets and Asda pulled the plug on Dales the same year. Ed, belonging to Carrefour, retreated in 1995, as did Penny Market. Home-grown chains such as Discount Giant, Lo-Cost, Normans and Co-op Pioneer also came and went.