In 2012, when I was applying for roles in retail, I remember Aldi and Lidl’s combined market share in the UK was a relatively modest 5%, with the “big four” supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – dominating the UK grocery market. Fast forward five years to 2017, and the discounters’ combined market share is now at 11.7%, with Aldi now the fifth biggest retailer in the UK, and Lidl currently experiencing faster growth. But how have the “big four” allowed the discounters to eat into their market share in such a relatively short space of time and what strategies have Aldi and Lidl adopted to experience such rapid growth?
Multi-buy vs. low price
One of Aldi and Lidl’s most successful strategies is their movement away from untargeted, multi-buy promotions such as a ‘buy one, get one free’ (BOGOF) or ‘buy one, get one half price’ (BOGHOP) – instead they focus on ‘everyday low prices’ (EDLP). This move reflects how customers have started to shop in the UK – making the move away from shopping multi-buy deals to the consistent spending achieved through shopping low price items. This shift can be put down to 3 key changes in customer buying behaviours:
1. A want to reduce basket spend, with a pre-determined view of what they want to purchase prior to visiting the supermarket.
2. Mounting confusion over the multi-buy offers e.g. promotions that only apply to certain channels such as ecommerce and not in store, or inaccurately labelled offers for products (promotion changeovers can occur so frequently and often that errors are easily made).
3. Increased concerns over the waste implications of multi-buy offers, this being particularly true for fresh products with a short shelf life.
We saw the “big four” respond to these trending customer behaviours early last year by reducing/removing their multi-buy offers in favour of the ‘everyday low prices’ strategy the discounters were using so successfully. The results of this new approach are now starting to be seen with it being reported last week that supermarket promotions were at their lowest level for eleven years as a proportion of customer spend, with only 26% of goods bought on promotion (I remember a few years ago when this figure was almost double for some retailers!).
A year on from revising their promotional strategy, have the “big four” been able to win back their customers by adopting the discounters’ approach?
Low price, high results
If Tesco’s recent results are anything to go by, then yes, ‘everyday low prices’ is working. This month, Tesco reported an increase in sales and volumes last year, and full-year like-for-likes rose for the first time since 2009/10. In the report, Tesco attributed their success in part to be a result of their revised price and promotion strategy – responding to the customer’s wish for a reduction in their basket spend. Tesco have reduced the price of a typical shopping basket price by 6% since 2014 and the promotional participation has been reduced to 32% as a result of their investment in ‘everyday low prices’.
The timing of the move to this strategy has been particularly beneficial for retailers in the post-Brexit climate, where the pound has weakened and price inflation is at 2.3%. The move away from multi-buy promotions has allowed them to pass on more costs to customers without necessarily raising standard prices.
As a result of the decrease in promotions, offers are becoming a less significant option for shoppers looking to save money. In a time of huge competition in the market, increased price pressure, and changing customer behaviour, ‘everyday low prices’ is a strategy that works for both customers and retailers alike. So… although they still exist, it certainly seems imminent that we will soon be saying “RIP” to a major part of grocery; the promotional multi-buy.