Germany is a unique FMCG market with fierce competition in every aspect. The leading Discounter brands compete intensively with each other. In addition, Discounters have to deal with the growing market share of Supermarkets. In 2019 and 2018, Supermarkets grew more dynamically than Discounters. In 2019, Discounters even lost a small portion of its market share, whereas Supermarkets were able to gain on market shares.
For a decade, we have seen the consumers shifting towards quality and care less about price, which also is confirmed by a constant trading up within FMCG. This, of course, leads to less relevance of the Discounter’s USP: price. Discounters try to adapt to these changes, but in this particular environment Supermarkets seem to be a natural winner.
In 2019, we saw Discounters in Germany trying to keep up with the changing consumer behavior, e.g. through the listing of brands and different lines of private labels. However, it could become a must for Discounters to offer a more exciting shopping experience and to strengthen customer loyalty.
In 2020, COVID-19 affected the consumer and their shopping behavior significantly. At the beginning of the crisis an obvious expectation was, that Discounters would profit from households, that worry about their financial situation. But as the financial situation of the German households remained relatively solid and once again Supermarkets seem to convince with better pandemic tailored concepts and benefit most from the FMCG growth.
Last but least: pure E-Commerce players are entering the FMCG market and Supermarkets are expanding their E-Commerce activities in Germany, where the market share of E-Commerce is still relatively small compared to other European countries.
The “new normal” after COVID-19 will drive aspects such as trust, safety, sustainability, localism and E-Commerce. This could be a big challenge for Discounters, but could also present an opportunity to regain momentum if they make the right decisions at the right time.
Russia is a very exciting market for Discounters. In 2019, Discounters grew by a significant +11.9% compared to a growth of +9.2% for the channel in total.
Discounters as a whole achieved a value share of 28%, with the two largest Discounters – Pyaterochka and Magnit –at the same time being the two largest FMCG retail companies in Russia. Interesting enough: While the map for Western and Eastern Europe shows at least one of the multinational Discounter brands – Aldi and Lidl – almost everywhere as market leaders, the Top Ten List of Russian Discounters includes only national brands.
Furthermore, Russian Discounters are gaining market share from the large players, Supermarkets, and Hypermarkets, while losses of market share to E-Commerce and convenience stores are negligible due to low sales value numbers of the latter.
A very unique development is that Russian Discounters can score with more benefits than a low price and private brands. Market leaders Pyaterochka and Magnit, for example, changed their positioning over the last five years. They transformed themselves from "standard Discounters" to more convenience-oriented stores, with a wider range of import and premium labels, and an expanded assortment of ready-to-eat products and coffee zones.
However, a notable part of consumers in Russia are facing financial difficulties and are forced to look for low price products. Hard Discounters fulfill that demand, providing a limited assortment of really inexpensive products for price-sensitive shoppers. The Hard Discounters were able to gain market share from Magnit and Pyaterochka, mainly from low-income families with low education levels and non-occupied housewives. In total, growth rates for Hard Discounters have been significantly increasing with more than 50% in 2019.
Hard discounters became the focus channel for price-sensitive shoppers. At the same time, Discounters attract promo-oriented and convenience-driven shoppers due to the high number of stores within walking distance. COVID-19 restrictions on movement around the cities also influenced Discounters' traffic. The channel became more attractive due to proximity to home. Overall, we can see a very positive development for Discounters in Russia.
In 2019, Discounters grew by a significant +11.9% compared to a growth of +9.2% for the channel in total. Discounters as a whole achieved a value share of 28%, with the two largest Discounters – Pyaterochka and Magnit –at the same time being the two largest FMCG retail companies in Russia. Interesting enough: While the map for Western and Eastern Europe shows at least one of the multinational Discounter brands – Aldi and Lidl – almost everywhere as market leaders, the Top Ten List of Russian Discounters includes only national brands. Furthermore, Russian Discounters are gaining market share from the large players, Supermarkets, and Hypermarkets, while losses of market share to E-Commerce and convenience stores are negligible due to low sales value numbers of the latter.
A market share comparison with Western and Eastern Europe, and even with LATAM makes it obvious: For Discounters, Asia could be a playground for future growth.
Discounters in Asia only achieved a market share of 2.1% in 2019, while Hypermarkets recorded 12.9% and Supermarkets 26.9%. Furthermore, a large part of this market share of Discounters can be attributed to Japan only.
Whenever Discounters plan to enter the market in an Asian country, they might use this step to experiment on the best strategy. China is a good example for "Discounter on the rise", with a very successful story: In June 2019, Aldi opened 2 stores in Shanghai, which generated a lot of publicity with buyers queuing to enter the store. Aldi has by now opened a total of 9 stores in Shanghai, which - in contrast to a “classic” market approach of Discounters - are located in decent neighborhoods attracting middle-class consumers.
The most interesting aspect of Aldi's development in China is that they are far from being a classic discounter: Aldi addresses the more affluent shopper and price positioning, as well as the store set-up, can be categorized as a premium supermarket. This makes Aldi´s presence in China significantly different from that in the UK or other European countries.
Although Aldi lists private labels in its stores, these most likely would struggle to compete with local Supermarkets on price. About half of the shop floor is dedicated to local and imported fresh food. For example, Aldi offers a choice between Chinese beef and imported beef from Australia, which – even at the offered discount price – is about 30% more expensive than local beef.
The stores also feature a hot-food-counter, which is rather unusual, even compared to local Supermarkets – and is very popular among customers.
Aldi in China has an Omnichannel presence which is key to succeed in a market with this high level of digital interaction. Therefore, Aldi offers Scan&Go in its stores where customers scan their purchase while shopping and use mobile payment when leaving the store. In addition, Aldi uses a very popular WeChat application for delivery orders and has its own presence on Alibaba, the largest online marketplace in China.
To summarize: Aldi demonstrated that it has a good understanding of the Chinese retail market and that they were able to adapt their strategy accordingly. The positioning of the store towards a more western style works well in Shanghai. However, Aldi could face challenges with its current positioning beyond the top tier cities. This would limit their long-term growth potential.
Global data show a slight decline in the market share for Discounters in LATAM – from 7.1% (2018) to 6.9% in 2019. But the development within the Region is very differentiated.
Colombia is a fantastic case study of the rise of the Discounter. Five years ago, the channel opened its doors in Colombia on a broad basis with a clear focus on hard discount with the lowest available prices. With the “help” of a struggling economy, Discounters managed to increase their market share year by year significantly. In 2020, the market share for Discounters has grown to 25%. Today, we see three Discounters - Ara, Justo & Bueno and D1 – acting successfully in the FMCG market in Colombia.
At first, the traditional channel was the most affected by the growth of the Discounters, but piece by piece modern channels like Supermarkets began to lose market share against the unstoppable and unparalleled offer presented by the discounters. The rapid expansion of Discounters made it possible for shoppers to access stores within walking distance.
Contrary to its general positioning, Discounters in Colombia started opening stores in mid-to-high and high-income neighborhoods, offering premium products, but low price and private labels, too.
This strategy paid off: The trust that middle and high-income households placed in discounters also spilled over to low-income households as the barrier to try new products was turned down.
The offering inside stores made it easy for shoppers to try new categories and new segments (more premium) by still maintaining an acceptable ticket for high quality.
During COVID-19 lockdown, shoppers in Colombia have turned to Discounters for “stock up missions” at a lower price. Unlike other countries, in Colombia, the crises benefited private labels, especially in home care and hygiene baskets. The urgency of the purchase implied the shopper was more open to purchasing whatever was available. This will help the Discounters to gain even more trust in the future.
An opposite development could be seen in Brazil, where Discounters since 2018 lost significant market share. The reason for this development is a strong decrease in the number of households shopping at Discounters. As the households abandoned Discounters, Supermarkets and Atacarejos gained importance. The decrease of households shopping at Discounters is reflected by the closure of several Dia stores that occurred in this period. Discounters are not as representative in Brazil, with Dia being a dominant player in this format, thus, the movements of the Discounters format in Brazil are driven by Dia.