Manufacturers under price pressure from the multiples could find that trading with UK discount stores, such as Lidl and Aldi, is more profitable, according to Joanne Denney-Finch, chief executive of grocery consultancy IGD.
The no-frills retailers will grow rapidly over the next few years, introducing fresh meat and produce, ready meals and 'healthy' options to their traditional dry goods ranges, said Denney-Finch. Aldi was already adding new ranges, while Lidl was reviewing its UK activities in a strategy which mirrors the discounters' policies on the Continent. There they undercut other grocery outlets partly by concentrating on only a limited number of lines, said Denny-Finch. While Aldi had a turnover of euro 32bn compared with Wal-Mart's euro 90bn, it stocked just 700 lines, compared with Wal-Mart's 90,000, leading to a turnover per item of euro 46m at Aldi compared to Wal-Mart's 1m.
Discounters did not demand the marketing support of the mainstream retailers and distribution channels were simpler, leading to higher profit margins, according to those doing business with them. The downside was that the rise of discounters could force big brand manufacturers to cut prices as cheap own-label grows.