Have Aldi and Lidl pulled the EDLP rug out from under the big four’s feet?
For so long the champions of everyday low pricing (EDLP), this Christmas the big four supermarkets have been shown a clean of pair of heels as the discounters of Aldi and Lidl have stolen significant market share.
At best the experts are predicting that Asda will have held their own and at worst, as with Tesco and Morrisons, will have seen a significant drop – 2.6 per cent and 5.6 per cent in year-on-year sales for the six week Christmas period.
It was only Sainsbury’s that bucked the trend and actually overtook Asda in sales for the four weeks to January 5th – the first time since 2003.
These percentage points might not seem like a big deal but to put them in perspective, a one per cent drop in market share in the UK represents around £1billion. So with Aldi’s sales growing by 26.3 per cent and Lidl’s by 17.2 per cent, have they got something right or are the big four getting things wrong?
The first thing to acknowledge is that the supermarkets are scared – particularly those that have built their brand on price and not value. Already Morrisons have responded to shareholder pressure with a proposed £800million sale and leaseback on its property empire, and Asda introduced its 50p everyday essentials range hoping to win back consumers with trusted British brands.
But are these sticking plaster measures just masking the deeper issue that the territory supermarkets have traditionally played in, with their price match promises and guarantees, is no longer theirs to own.
Consumers have realised that the big four are no longer the cheapest place to buy their weekly shop. They have already realised that the ‘discounters’ have come a long way in improving their image as well as their range. Six or seven years ago I got into an argument with the head of a major food manufacturer over calling Aldi a discounter when he insisted they were a lifestyle brand. I’ve finally come round to his way of thinking (I was still right at the time).
Looking back at the festive period, this shift allowed UK shoppers to save money on essentials so that they could spend on extra-special items to help celebrate a proper family Christmas. Which is why Waitrose had such a good trading period and Sainsbury’s, the only one of the big four to focus on quality over price, also did so well.
But what does this mean for the likes of Asda, Tesco and Morrisons? To my mind it means some pretty major changes in brand strategy. The last two or three years has seen the big four really morph into one another. You just choose yellow, green, blue or orange based on your preference. They are now going to need re-establish their own identities and what they stand for.
Tesco is potentially the most secure as it is already some way down the road of diversifying its offer. With everything from Blinkbox to Tesco Law and the hudl tablet, it’s arguably as well known for its wider services these days as it is for grocery.
Asda could take the traditional Walmart approach and go toe-to-toe on price. But any discounts they offer will need to be passed on to an increasingly squeezed supply chain and, with a policy of buying British, that won’t go down well with consumers. They are also following Tesco in product diversification, but they need to find a proposition that works harder with consumers and delivers more than just ‘look we’re cheaper than the other three’.
Morrisons are in a similarly risky position, with the even greater threat that they still haven’t got online or home delivery services fully running and are also slow in to the growing convenience sector. Where Morrisons made their ground on the other supermarkets previously was in fresh produce, expertise (there’s a butcher in every store) and provenance and this remains a defendable position, at least against Aldi and Lidl.
So ultimately, yes Aldi and Lidl have stolen EDLP and with it market share, which means we can expect an aggressive response from the big four but hopefully with it one that also delivers greater choice and diversity for consumers.