The UK’s Big Four supermarket chains (Tesco, Sainsbury’s, Asda, and Morrisons) are under pressure. All four have seen their UK heads depart in the last two years as intense competition from German discount chains Aldi and Lidl eats into sales and customer numbers. Most recently, Andy Clarke of Walmart-owned Asda was replaced by the head of Walmart’s Chinese business.
Aldi and Lidl are outsmarting their established British rivals by offering exceptionally cheap but quality produce. Compared to the Big Four, Aldi’s supermarkets are less polished and have smaller numbers of staff. Their product lines are far narrower, numbering a couple of thousand versus tens of thousands. And 90% of products in Aldi’s stores are own-brand products (Lidl offers more in the way of brands), while the branded goods Aldi does sell are often sold at higher prices. In combination, these factors allow Aldi to cut prices while maintaining a level of product quality that its rivals struggle to match.
It has taken time for a brand-aware British public hesitant to see the value in these unfamiliar German stores popping up all over the UK, but in the last year Aldi and Lidl have grown 11.4% and 14.2%, respectively, to occupy 6% and 4% of the UK market. Asda has suffered disproportionately, given its position as the cheapest of the UK’s major supermarkets. The Walmart-owned company saw its market share fall 0.8 points to 16.2% of the UK market in the 12 weeks to February 28, 2016, slipping behind rival Sainsbury’s.
Aldi’s marketing strategy focuses on the significant price disparities between its own-brand goods and recognizable branded products on sale elsewhere. For instance, its tomato ketchup is a head-turning £1.26 cheaper than an equivalent bottle of Heinz. It hopes that initial skepticism over the quality of the German retailer’s unfamiliar and foreign food turns to pleasant surprise.
That being said, while all the talk is of Aldi and Lidl devouring their opposition, the market might stabilize sooner than expected. The German pair struggle — and will continue to struggle — to compete with the Big Four on “weekly shop” credentials. The Big Four can offer a much wider product range alongside conveniences like toilets, coffee shops, and bagging areas at checkouts, as well as fuel pumps.
The two companies are also less sensitive to the needs and desires of the British market. For instance, Aldi has been slow to seize sales opportunities linked to Ramadan and has made high-profile lapses in the authenticity of its halal products. In contrast, Tesco expects a £30 million sales boost from the monthlong religious observance.
And while consumers are feeling the squeeze of austerity Britain, not everyone wants a budget shopping experience. Further, it could be the case that Aldi and Lidl are rapidly filling a niche that will remain just that — a niche. In Germany, Aldi’s home market, it occupies around 20% of the market, which perhaps provides a clue as to its long-term potential in the UK.
In sum, there is no doubt that Aldi and Lidl are outcompeting the Big Four in certain ways and causing headaches in the boardroom, but reports of crumbling empires may yet prove to be exaggerated.
Malcolm Gledhill is Dun & Bradstreet’s expert on the European marketplace. Malcolm joined Dun & Bradstreet’s Macro Market Insight team in 2014 before moving to the Company team in 2016, and has a BA from the University of Southampton.