Discounters' costs will increase as they grow

By Rick Pendrous

- Last updated on GMT

The discounters are likely to face increased costs: Rick Pendrous
The discounters are likely to face increased costs: Rick Pendrous

Related tags: Hard discounters aldi, Asda, Supermarket, Wal-mart, Aldi

News that supermarket chain Sainsbury had entered into a £25M joint venture (jv) with Dansk Supermarked to establish 15 Netto stores across the UK was further evidence that the major multiples recognised they needed to do more to address the inexorable rise of hard discounters Aldi and Lidl.

The supermarket price wars, that are a big concern to suppliers have been one strategy adopted by the likes of Tesco, Morrisons and Asda.

Sainsbury clearly felt that price cutting alone would be too damaging to its existing customer proposition. But it had to do something, and the new jv is its response. Only time will tell whether it is the right one.

So how much of a threat do Aldi and Lidl present to the big four? Clearly, radical change is underway in the retail landscape. Not only are the discounters in the ascendant, convenience stores are replacing huge out of town stores. And then there is the growth in internet sales of groceries. But the hard discounters may not have it all their own way in the long-term in stealing market share from the big four.

Retail insider

As one retail insider said to me last month, suppliers might find the discounters easier and cheaper to serve at the moment because the latter tend to ride on the coat-tails of the standards, production procedures and audits put in place by the multiples. As they grew, they would no longer be able to get away with this, he argued.

The bigger Aldi and Lidl get, they will be subject to greater scrutiny, forcing them to introduce their own supply chain checks and balances, with the associated extra costs these would incur, said the source. If and when that happens, they might not appear quite so cheap to Britain's shoppers.

Related topics: Retailing Crisis, Manufacturing

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