A Closer Look at Discount Supermarkets

By Rainer Anskinewitsch

Leading global discount supermarkets have begun investing in the U.S. and extending their footprint. Shoppers are attracted by their low prices and wide assortments of quality goods. This can be a challenge for more traditional supermarkets that want to keep their shoppers from switching to discount retailers. At the same time, these global retailers offer U.S. manufacturers a good opportunity to generate additional revenue in this emerging channel.

To remain competitive, traditional supermarkets and their manufacturers can benefit by better understanding some of the fundamental principles of discount retailers as shopper expectations and paths to purchase continue to evolve. There are five that global discount retailers typically follow:

1. Cost Discipline

Being extremely disciplined about cost is part of the DNA of any discount supermarket. They strive to eliminate all non-value adding cost, from ensuring that they have energy-saving stores to having customers directly help in keeping prices low. For example, some discount retailers either don’t provide shopping bags or ask shoppers to pay for them. In some stores, shoppers may use the empty boxes in which the products were delivered to take their items home. All of these ideas save money with the added bonus of being environmentally friendly.

Aldi, meanwhile, asks shoppers for the deposit of a quarter to use a shopping cart. When the customer inserts a quarter, the shopping cart is released, and when the shopping cart is returned to the store so is the quarter. This saves the cost of paying staff to collect carts from the parking lot.

Discount supermarkets are planned around the principle that time is money, and every single aspect of the store and its experience should add value. And they know that it’s the little things that can have the most impact. For example, by adding multiple bar codes to a product’s package, store cashiers at the checkout can easily scan an item, as they no longer need to hunt around of the typical single barcode. This may only save a few seconds on an individual shopper interaction, but for a retailer with multiple stores, this can save hours of store personnel time.

2. Price Leadership

By eliminating all non-value adding cost, discount supermarkets are able to offer products to consumers at a lower price. In Europe, the price discount that supermarkets set makes them the price leaders. For larger stores to compete, they are forced to lower costs as well.

3. Quality Obsessed

European discount retailers are obsessed with providing the highest quality product at an affordable price. They focus on this message of quality in their marketing campaigns, which has helped build trust with consumers and led to the retailers’ continued growth.

4. Simplicity Mindset

Unlike big box stores and other retailers, European discount retailers believe in simplicity in everything from the store layout to product assortment to finances. These retailers are only interested in net prices and do not seek discounts, promotion funds, kickbacks or listing fees.

Discount supermarkets usually do not have staff functions, as it’s believed they do not add value and drive up costs. They also don’t have detailed annual planning processes and tend to decentralize decision making. The only target all discount retailers have is to always offer consumers the highest quality for the lowest price.

5. Avoid the Limelight

It can be difficult to learn about the inner workings of European discount supermarkets, as they like to keep things close to the vest. Owners and managers typically don’t give public statements or press interviews. These retailers also usually don’t release financial reports externally and make few external hires, mostly recruiting from within, which makes it more difficult for competitors to gain any insights and this helps avoid bad publicity. On the downside, discount supermarkets often lack comprehensive market and shopper data. Getting their only information from their suppliers, they also therefore lack the proper benchmarks for comparing their performance with the competition’s.

Obviously there can be pros and cons to any of the principles above, but helping your consumers get quality products at decent prices is always a good move.

Do you have questions on how you can uncover new growth in your CPG retail or manufacturing business? Contact IRI at Rainer.Anskinewitsch@IRIworldwide.com.

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