Inside the Discount Grocery Revolution
Shopping habits born of the Great Recession have shown no signs of letting up as price players gain new shoppers—and outsized influence
By Jon Springer, Winsight Grocery Business
Aug. 06, 2019
Increased consumer demand for price as part of the food value equation shows no sign of letting up. The trend is accompanying unprecedented expansion for hard discounters like Aldi and next-generation retailers like Amazon, triggering widespread fragmentation of consumer shopping patterns, and bringing heavy pressures on the margins of food retailers as they keep up with one another’s pricing and fend off their unconventional competitors.
Observers trace the current phenomenon to behaviors that developed a decade ago in the throes of the Great Recession and an acceleration of trends that gave rise to a new era of private label and simply haven’t subsided, even as the economy rebounded.
“It’s not just the rise of the discounters we’re talking about,” says Jose Luis Gomes, president of data science firm Dunnhumby North America, which has global headquarters in London. “It’s really the rise of price as a consumer preference across all food retail.”
Dunnhumby’s research indicates that price overtook quality as the top driver of consumer preference among food retailers as the recession hit in 2008. That trend has continued since, and it has been accompanied by an industrywide decline in margins affected by the mix of items sold—an indicator of fragmenting consumer shopping patterns.
Simply put, consumers are less loyal to particular retailers and are shopping at a variety of outlets where perceived prices hold the greatest attraction, followed by perceptions of quality, which Gomes describes as a mix of assortment and store experience. Retailers that can excel in this combination are realizing exponentially greater growth and financial success than their peers. They include price-focused leaders such as Trader Joe’s, Costco, Sam’s Club, Sprouts Farmers Markets, WinCo Foods, Walmart and Aldi.
Food Marketing Institute’s 2019 U.S. Grocery Shopper Trends report illustrates a similar scattering of shopper trips across channels and, in most cases, trending growth for formats with a strong perceived price image. Today, just less than half of consumers (49%) identify the supermarket as their “primary store” for food, with the remainder split between supercenters (22%), club stores (5%), discount stores (3%), limited assortment stores (5%) and organic/specialty stores (3%). Another 8% say they have no primary market, while 5% identify “other” channels (convenience, military commissaries, drugstores, ethnic and online). The study defines discount stores as “conventional discount stores such as supercenters without fresh meat or produce.” Aldi and Lidl are identified in the limited assortment store category.
Probably no single retailer has used the awakened consumer interest in price to better advantage than Aldi, which is in the middle of a $5 billion expansion and remodeling program that will bring the chain to 2,500 stores nationwide by the end of 2022. Aldi today casts a vastly different shadow than it did prior to the downturn. Though not exactly a trend chaser, the tightly held German hard discounter was in position to capitalize on the timing of the economic downturn, observers say.
Brian Numainville, principal of the Retail Feedback Group, Lake Success, N.Y., noted that in addition to a continued adherence to Aldi’s legendary efficiency—which had allowed it to skillfully serve its low-income shopper base during that recessionary period—the discounter under CEO Jason Hart did a few things very wisely. Those include...
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