IGD's latest research, The Future of Discounters – The Shopper Perspective, indicates that over a quarter of British shoppers have been buying more at discount stores over the past six months.

It is clear that the initiatives of the discount retailers to broaden their appeal and gain an increasing proportion of shoppers' spend have been working. Investment in product quality, ranging and extending the geographic reach of their offers, along with emphasising their value credentials have all played an important role.

While the pace of sales growth at the discounters accelerated as the impact of the economic downturn started to be felt by shoppers, it is worth noting that the retailers were already experiencing relatively higher levels of sales growth prior to this. Many operators had put in place a range of strategic initiatives as far back as 2005 in order to broaden their appeal amongst consumers after relatively slow progress in the UK market.
 

	Aldi has seen a dramatic transformation

Aldi

The most dramatic transformation has taken place at Aldi. Over recent years the retailer has placed an increased emphasis on product quality and communicating this to its customers, and since the launch of its premium private label range, Specially Selected, Aldi has won numerous product quality awards. More recently, the product range has been updated to communicate the story behind each product, with the packaging displaying a picture of the grower or master confectioner, replicating the strategy of more premium-based retailers.

However, it is not only the product range that has been overhauled, but also the in-store environment. The evolution of store design has enabled the retailer to portray a more modern and contemporary image, moving away from the very basic store layouts which characterised the discounters in the 1990's.
 

	Recent Lidl 'Best of British' marketing

Lidl

In contrast to the focus on developing private label ranges at Aldi, Lidl has been embracing the role of brands in both driving footfall and providing a degree of familiarity and reassurance to shoppers.

While the penetration of branded products has been increasing steadily, the retailer has also been embracing wider UK grocery market trends, with the addition of both organic and Fairtrade products, and committing the sourcing of its fresh beef, chicken and pork to the UK.
 

Netto

There has also been a broadening of the offer at Netto with the addition of tobacco, greeting cards and E top-up as the retailer seeks to capitalise on its convenient store locations. Many of its stores are located in densely populated areas, with a high number of shoppers visiting its stores on a daily basis.

	Netto remains committed to its core philosophy

However, Netto remains committed to its core philosophy of offering low prices and great value for its customers, and under the direction of its new Managing Director, Charles Kay, the retailer will be continuing to focus on price, communicating the quality of its own-label products and driving hard the availability of its fresh food ranges.
 

Looking ahead

In the current environment, the discount retailers will also be seeking to take advantage of lower land and build costs to extend their geographic reach. It is anticipated that over 100 stores a year will be opened collectively by Aldi, Lidl and Netto, building on an existing store portfolio of over 1,100 outlets. Not only will this provide greater number of shoppers with access to a discount store, but will also be a valuable generator of sales growth over the next two to three years as the space matures.

However, the discount retailers are unlikely to have it all their own way. The major multiples continue to focus on expanding their entry-level product ranges, with developments such as Tesco's 'Discounter Brands' targeting these retailers directly. With a significant proportion of the discount retailers' sales generated by their weekly non-food special deals, they will not be immune to the downturn in this sector, as consumers cut back on their discretionary spend. New competition is also emerging as the high street based value operators, including B&M, Home Bargains and Poundland expand their food offers.

Nonetheless, the profile of the discount sector is at all time high, and there is an increased willingness amongst consumers to visit discount stores as a means of managing their household budgets. Following the improvements of recent years, many shoppers are being delighted at what they are finding in-store, and the clear challenge for the sector is to retain these new shoppers when the economic climate improves.
 

More information

	The Future of Discounters - The Shopper Perspective
	In their quest for value in the current economic climate, shoppers are considering their options outside of where they normally do their shopping. This report investigates current attitudes towards discounter stores including the barriers and drivers to using these outlets, and compares attitudes across key western European markets.

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Stewart Samuel is a Senior Business Analyst at IGD. He is responsible for UK research, publications, training and conferences and the publication and presentation of strategic analysis. In addition to being the lead author of The Evolution of Convenience Retailing, he is co-author of IGD's UK Grocery Retail Outlook report. Read Stewart's biography here.