Deal with discounters at a level you can sustain even if you double or treble sales

The discounter freight train has got up a head of steam and is cruising past the competition to record shares. Supermarket volumes last month fell year on year for the first time since 2014 and we also have underlying deflation in retail prices. All of the top four lost market share during the past 12-week reporting period, with soft discounters Asda and Morrisons hit worst. Meanwhile, Aldi is up 22.6% and Lidl 14.8%. They now account for more than 10% of UK supermarket sales with expectations of doubling or even trebling that. What a thought, 30% of shopping happening that way, yuck!

But your business can’t afford not to be a part of it. The opportunities for own label suppliers are huge, so don’t let this become a feast of imports. Now is the time to establish credibility. Bigger branded suppliers recognise they can no longer sit back with high and mighty dismissal of the discounter’s role in the shopper’s mind. Unless, that is, they are happy to battle for share of a shrinking pie for the next five years. The macroeconomic turnaround might well put more disposable income into shoppers’ pockets but the discounter stigma is overcome and the habit is now established.

In reaction, I see too many suppliers cutting the value of their prize products in chase of the opportunity, without recognising the long-term implication. Differentiating a relevant offering for the discounters to avoid a big four backlash is only half the problem. The challenge is also to set cost pricing at a level at which you are happy to encourage volume growth.

On differentiation, the answer for most will lie in the undeniable difference in the shopper mission. Understand why the discount shopper will buy this product and why they will buy it from this format. It’s a basic selling story if you have the insights but it now needs to drive the product, pack and price, not just the promotion.

Then yes, offer a low cost price but look at the volume and ask if you’d be comfortable were it to multiply by three, replacing full margin volume. Recognise also that as their power grows, the discounters will exert more pressure for promotion funding. There’s nothing worse than doing a deal and hoping it doesn’t take off, especially on these train tracks.

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