With a New Makeover Hard Discount Grocery Stores Are Ready to Disrupt the US Market
Customer experience is key. Hard discounters—like German retailers Aldi and Lidl—are famous for less than-stellar customer experience: dark stores with few employees, questionable looking products still in packages. The whole shopping experience has been sort of dingy and sad. Not anymore. These two stores, in particular, are getting ready to disrupt the grocery market and other retailers need to be prepared.
Aldi announced recently it plans to remodel and expand 1,300 stores by 2020, with modern design, open ceilings natural lighting, and recycled building materials. They’ve already added a gluten-free section and have begun removing MSG, certified synthetic colors and partially hydrogenated oils from all ALDI brand foods. Meanwhile, Lidl is expected to open its first 150 U.S. stores in 2018.
These stores keep costs low—up to 50 percent lower—by being small, offering fewer products and off brands and reducing the number of employees through automation and technology. In the U.S. they’ve gotten a bad rap but in countries like Germany, they have up to 40 percent of the market. One estimate says the two retailers together could take as much as seven percent of the U.S. grocery market in five years, and they’re giving Wal-Mart a run for its money. They’re getting a boost from other grocery retailers like Amazon Go whose more innovative, and efficient ways of shopping are making people more experimental with their shopping strategies.
Of course, we’ve just been writing about America’s Favorite Grocery stores, many of which are packed with extras. But the question is, if shoppers can get similar products but limited flavors for half the grocery bill, how much trouble might traditional retailers be facing? If other retailers and manufacturers want to stay competitive they could learn a few lessons from these hard discounters.
Insights from Hard-Discounters
Shifting Category Assortment: Stores like Aldi and Lidl keep the number of products they have small, which significantly saves on the supply chain. But they also make sure they bring in new products regularly and “test” them to see whether or not they earn a regular spot in the store. Instead of having to manage and transport many brands, they keep the selection small but targeted. For manufacturers, working with these stores to join their product mix could mean getting a better spot in the market. For retailers, getting very specific about what they offer consumers to keep them coming back could prove a winning, and cost-saving strategy.
Streamlined Marketing Strategies: Consumers are getting smarter. Research has shown that Aldi brands, and other off-name brands have the same quality, often, as brand name products. Millennials, who do their research and have been recognized as smart bargain shoppers who crave authenticity without frills, are happy to buy the lower priced products without the famous name. Shoppers are busy, too. So low-frill marketing targeted not at overwhelming with information but at offering themes for the shoppers and replacing multi-page mailers full of products. Smart use of apps to target sales and marketing to the right customers reduces information overload and lets customers know you’re looking out for them.
A lot goes into the customer experience. For a certain kind of shopper, lots of extras will create loyalty. But as stores like Aldi replace their negative store experience with a cleaner, more pleasant one, those 50 percent discounts are going to look better and better to shoppers.
A 2016 study by the Food Marketing Institute shows that more than 65 percent of shoppers will drive past at least one store to get to the one that has lower prices in general. As more streamlined, efficient retailers begin to move into the market, grocery retailers will have to use data to carefully weigh decisions about how to invest their shelf space and promotional dollars in the future.