A weakening global economy, rising fuel prices and more expensive food have been impacting on the headlines we read and the products we put in our shopping baskets.

But despite these tougher times, growth opportunities remain for those with the right proposition, according to IGD’s Gavin Rothwell.

A glance at any recent monthly market share figures shows that it’s those retailers that communicate particularly strongly on value that are performing best – while trading is tougher for retailers more at the premium end.
 

Discounters growing

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The growth of the discount sector has been a key feature of late 2007 and the first half of this year, with Aldi and Lidl leading the charge. Current data from TNS shows discount sector growth of over 15%, demonstrating the extent of this performance.

Alongside the economic push factors, the discounters have been creating a number of pull factors of their own. Aldi’s repositioning, for example, with a stronger focus on quality, but the same incessant drive for efficiency and offering value for money, has helped broaden its appeal and attract more AB shoppers. Lidl, meanwhile has benefited from an expanded branded presence in-store.

Growth beyond the discounters

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Delivering value is not the exclusive preserve of the discounters. More broadly, across the grocery sector there has been greater focus on communicating value, well documented over recent weeks. Less publicised, however, have been some of the growth stories elsewhere in the sector.

Wilkinson, for example, has expanded to become a £1.4bn business with close to 300 stores, and aims to take this to 500 by 2012. And food is rising fast up the Wilkinson commercial agenda, now offered at close to 150 stores. There is a strong focus on developing this further – particularly on the convenience side – as the retailer seeks to better exploit its high footfall locations. Across its product offer Wilkinson is working hard to boost the number of brands on its shelves, with the retailer introducing 2,000 new branded lines over 2008. Food, health & beauty, kitchenware and electricals are all key components of this branded push.

Home Bargains is another story of growth in the discount sector. It already trades from nearly 150 stores across the country, and has ambitions for 500 as part of a 10-year plan. Its latest accounts showed impressive annual growth of 18%, boosting sales to £322m.

Poundland, too, has been driving growth across its estate, opening 28 stores in the past 12 months with plans to open 100 more in the next three years. It has targeted 300 stores by 2012, and set the ultimate goal of 600. Results for 2007/08 (due to be released shortly) are expected to show an uplift of more than 20% on 2006/07 sales of £280m. At Poundland there has been a stronger focus on developing the food offer, introducing more brands to the assortment and trialling chilled lunchtime ranges in a number of stores.
 

Frozen food warming up

It’s been a good year so far for frozen food specialists, with growing numbers of consumers appreciating the value on offer in many of these stores. Clearly, frozen food has experienced its own particular challenges over recent years, as shoppers have favoured fresh and chilled ranges. The challenge here is for the frozen food sector and frozen food retailers to retain these additional customers once the economic outlook improves. This is all about offering more than just price.

And more broadly, there is an important longer term challenge for value retailers in communicating how the value-quality equation that they offer chimes with consumer needs, even in times of greater economic prosperity. The key here is to use the low prices as a platform from which to build the proposition – as Aldi for example has done – rather than simply relying on price alone. Certainly there is, at times, an opportunity in offering a proposition based solely on being cheapest, but this won’t always be the case. Getting the right balance between price, product, in-store environment and service will be crucial to longer term success.

More information:

The Evolution Of Discount Retailing Discounting is a hot topic for a growing number of suppliers and retailers. This new report shows how discount retailers are changing and the opportunities and challenges this brings.

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Gavin Rothwell is a Senior Business Analyst at IGD. Much of his work focuses on the major UK grocery multiples, tracking the strategy of each of the leading players, and he is the lead author of IGD’s forthcoming UK Grocery Retail Outlook report. His work at IGD has crossed a wide range of UK and international themes, including leading IGD’s High Street value retailing stream and playing a key part in IGD’s UK and Global discount research programmes.