Over the past few years, many professionals in the retail food industry have been focused on e-commerce as the biggest threat to traditional supermarkets and grocers. While the concept of the online grocer has been around for at least the past 10 years, the emergence of AmazonFresh has really put the industry on notice. Traditional retailers, in turn, have responded with online services of their own, from click-and-collect to delivery in a variety of formats.
While e-commerce is certainly having an impact on our industry, there’s another channel that’s making significant inroads and outpacing traditional supermarkets in terms of growth. That channel is deep discounters.
Despite the given channel name, deep discounters can offer more than just lower priced products. They offer a wide variety of premium, private label products, including organic. Their stores are smaller, making them more convenient to shop for some consumers. Their newer stores are also more esthetically appealing and easier for shoppers to navigate. And while their primary shopper base has historically been lower income shoppers, more and more middle and higher income consumers are shopping these stores.
From a traditional supermarket retailer perspective, this format can also be difficult to compete against because of how they manage and limit costs. Deep discounters usually have a much more restricted product inventory and number of SKUs than traditional supermarkets, as well as much lower operating costs due to fewer employees, store size and layout and minimal in-store service. Overall, they’re able to keep their costs much lower than other food retailers, and this creates a competitive challenge in the retail food industry.
How fast is this channel growing? Let’s look at the numbers. According to Emerge Strategic Solutions, Aldi plans to add 400 stores in the United States by 2019, while Lidl—which is entering the US market for the first time this year—is planning 100 stores by 2018. Store size for these retailers averages 9,800 square feet, much smaller than traditional supermarkets.
And as part of their growth, they’re considering current shopper behaviors when it comes to the products they sell:
- Keying in on Millennial values like authenticity, transparency, simplicity and individuality;
- Enhancing and expanding their fresh perimeter offerings, such as now baking fresh bread in-store;
- Adding new varieties of organic, gluten-free, functional, and other specialty and free-from products; and
- Maintaining a strong social media presence for promoting their stores and products.
Deep discounters are no doubt bucking the trend when it comes to all brick-and-mortar retail. This channel is growing, and they’re doing so by giving consumers what they want.
And it’s their business model and focus that can benefit the entire food retail industry. How so? By examining how this brick-and-mortar channel has been able to grow while others have not. Look again at the examples above on how they’re attracting and growing their consumer base. They’ve identified what brings shoppers in and are successful, even in the face of growing competition from Amazon Fresh and others.
Traditional supermarkets must do the same. In addition to focusing on trends like fresh, organics, local and social media—which many supermarkets already do a fantastic job in—the success deep discounters are having should also be inspiration for all brick-and-mortar stores on what they do that online grocers cannot.
Today’s shoppers are seeking not only convenience, but also an experience. This is where supermarkets can have a huge edge over their online competition. From samples and pairing ideas, to in-store restaurants, meal ideas and wine tastings, traditional retailers can deliver a food culture that includes the sights, sounds and smells that a sterile online experience cannot. And while online grocers may have an edge when it comes to convenience shopping for dry goods, it simply does not offer consumers the ability to personally view and select items from the fresh perimeter.
As an industry, let’s not fear the rise of deep discounters in food retail. Let’s use them as inspiration to continually grow and evolve as an industry and make our customers lives easier.
How are your stores evolving with changing consumer shopping and eating trends?
Mike Eardley is the president and CEO of the International Dairy Deli Bakery Association.