US supermarket sector braced for German invasion

22 May 2017 Consulting.us

US shoppers are embracing discount grocery stores whose expansion across the country is expected to slash the market share of traditional retailers. Cost and quality factors have helped the discount sector become mainstream. 

Research from Bain & Company indicates that discount supermarket chains have a bright future in the US marketplace. The leading management consultancy surveyed 2,800 American shoppers for its report: ‘Getting Ready to Battle Grocery’s Hard Discounters’. 

German giants Aldi and Lidl feature prominently in the report, which paints a stark picture of the challenges facing traditional grocers across the country. After cornering the European market, Lidl recently announced its entry into the US, while Aldi plans to expand its fleet of 1,600 American stores to 2,000 within a few years. 

Bain researchers zeroed in on key segments within the American shopper demographic. They found that discounters are increasingly attracting consumers from the mainstream and family focused segments, tempted by the range and number of deals. Aldi in particular is reaping the benefits of targeted investment in different segments. More than six in ten respondents said they would try an Aldi if it opened nearby. Lidl was even more popular despite, or perhaps because of,  its later entry, with 71% willing to give it a shot. 

Aldi historically focused on smaller households

Bain identified lack of awareness as the major hurdle facing Aldi’s plans for US expansion. Almost 40% of respondents who said they had never shopped in Aldi said the primary reason was simply not knowing about it. Roughly 30% cited the lack of a local Aldi store, while just 20% said value for money and food quality informed their decision.

Shoppers havent tried Aldi due to lack of local stores

With 60% of respondents identifying good value and low prices among their important shopping criteria, discounters are in a favorable position to continue expanding, Bain found. A convenient location and availability of fresh produce were cited by around half of surveyed shoppers as essential to their decision making. 

Traditional shoppers perceive Aldi as superior on top two criteria-value and price

One crucial element investigated by Bain researchers was the public perception of discounters’ store brands, compared to more established national name-brand products. A substantial majority of 80% agreed that store brands are typically just as good, or better than, more famous national brands. 

Regular customers keen on store brands

Alarmingly for traditional retailers, huge majorities said that once they tried an Aldi product they were unlikely to return to national name-brand products. This applied across the board with 80% considering Aldi’s meat and fish products to be at least equal to national brands. For non-perishable and canned food the figure was a striking 95%. 

Once they try Aldi products they tend to rate them highly across all categories

Kent Knudson, a Partner in Bain’s Retail Practice, and co-author of the report said, “Even the most faithful shoppers at traditional grocery stores are increasingly rolling out the welcome mat for these European imports. While this should be a wake-up call for U.S. incumbents, few seem to be concerned about the potential impact to their business, and even fewer are taking the broad range of actions necessary actions to address it.”

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US grocery sector in store for further hard discounter expansion

01 April 2019 Consulting.us

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”