At a time when the cost of living crisis continues to make waves in the news, the big four need to realise that the price war and discount retailers such as Aldi and Lidl are not going to go away, and adjust their strategy accordingly.
The economic slowdown made many people, also among the middle and upper classes, notice and try out the discounters. They realised that on many products the discounters are equally as good as the main supermarkets, but with a much lower price tag.
The upshot? Asda and Sainsbury’s may have increased their market share over the past month, according to the latest Kantar Worldpanel data, but this pales into insignificance compared with the 35.4% and 22.3% growth of Aldi and Lidl. Recently the discounters have gained even more traction by creating premium ranges, adding fresh bread and organic veg to their offers.
I’m convinced discounters will grow further and might even gain the same position in the UK as they have in Germany, where buying food basics at discounters and only topping up at the main supermarkets is a widespread shopping habit - and one shared by above-average income households. It definitely feels as though going to a discounter is less taboo in the UK now than it was before the crisis.
Which is why Sainsbury’s joint venture with Danish discount retailer Netto is a smart move. With only 15 stores confirmed to start with, this trial is relatively low risk for Sainsbury’s - allowing Sainsbury’s to compete with the other discounters without undermining its own brand. However, is there room for another discounter? When Netto left the UK following the sale of its stores to Asda in 2010, the retail space was very different to what it is now. The market is extremely competitive and it will be a challenge for a new player (even one we’ve had in the past) to enter.
So where does this leave Sainsbury’s? It has fared well in the convenience space. But with the departure of Justin King in a matter of days, it must really differentiate itself through its ethics and product quality if it is to thrive rather than just survive in this new LAD-loving era.
Reinhard Kreth is director of Added Value