In the Valleys what the lads mean for the props may be a discussion about forwards and backs. However, in grocery the ‘lads’ are the Limited Assortment discounters, while the PROPs are the Proprietary Brand suppliers. At the moment the LADS are growing at a phenomenal rate (30%+ in the case of Aldi), growth corresponding with weakness from the big four.
The significance of such rapid growth by the LADs for branded manufacturers is that the centre of their retail proposition is private label. While proprietary brands do feature in the Germanic domiciled discount stores, their presence is very modest compared with the larger assortment superstores. At the same time, high street value retailers (HSVRs) such as recently listed B&M Stores and Poundland have strong proprietary brand offerings, especially in grocery, household goods and health & beauty.
” It makes sense for suppliers to embrace the discount channel”
We have heard a number of industry leaders speak of c1% annual share appreciation for the discount channel for the foreseeable future, and growing participation from the LADs’ current c8% share to closer to 15% by the end of the decade. While the whole market may come out of the doldrums at some stage, the LADs and HSVRs pose both a challenge and opportunity for branded manufacturers.
On the one hand, the LADs are a structural challenge to their market with their private label gains. On the other hand, the whole discount channel is a source of much-needed growth, alongside convenience, wholesale and foodservice, when mainstream retailers could be undergoing structural change in sales and profit models.
It makes sense for suppliers to embrace the discount channel because it is here to stay, so a source of growth. Reappraising the strategic importance of the big four may also come to mind for suppliers if they cannot be a source of growth. However, the generic challenge from the LADs will also give greater priority to innovation in every sense of the word to create consumer interest and loyalty to brands. If the PROPs do not get themselves into shape then the LADs will be force for substantial re-engineering of supply chains.
Dr Clive Black is a director at Shore Capital Stockbrokers