Supermarkets - for better or worse
According to Warren Buffett, it takes 20 years to build a reputation. If that is the case, then Tesco - the company in which Buffett is one of the biggest investors - has a major problem.
The German discounters Aldi and Lidl arrived in the UK in 1990 and 1994 respectively. But after two decades of highs and lows, they have finally built a proposition that resonates with UK consumers, and they are reshaping how we shop.
YouGov revealed this week that the British public has a new favourite brand.
Aldi has overtaken John Lewis, the BBC iPlayer and Samsung to top the charts.
The BrandIndex measures the positive and negative sentiments generated across media and word of mouth. YouGov's Brand Index also saw Lidl enter into the top 10 for the first time (no 4). The other grocery retailers in the top 10 were Waitrose (5), and Sainsburys, at (10).
Given that Aldi presently represents less than 5% of spending n groceries in the UK, this is a remarkable achievement. It shows the intrigue surrounding the brand, and highlights the potential for Aldi to grow sales.
Tesco, Asda, Sainsbury's and Morrisons have allowed the interest in Aldi and Lidl to develop as people have looked for ways to battle declining household incomes. Now, there might not be anything they can do to stop even more shoppers exploring the discounters.
At the heart of Aldi and Lidl's rapid growth since 2010 has been a broadening of their product range and destroyed perceptions that their food is low quality by investing in distinctive marketing and new products, and increasing their range from 800 to almost 1,500 lines.
This was a result of wide-ranging review into customer perceptions, which found that shoppers wanted Aldi to become 'more British'. It's fresh meat, milk and eggs are all now sourced from Britain.
One of the secrets of their business model is that they sell fewer lines than a typical Tesco, compared with Aldi's almost 1,500 lines, a Tesco supermarket can sell 40,000. Someone has to pay for the extra space which gives so much choice. Aldi and Lidl offer limited choice, not limited quality.
Worryingly for the traditional supermarkets, visitors to Aldi and Lidl like what they see. People appreciate the consistent pricing, the simple store layouts, and the quality of the fresh food.
Some of the stripped-back characteristics of the store, such as the lack of a loyalty card or customers packing their own bags away from the till in order to speedup the paying process, are not proving a barrier.
Aldi and Lidl are not just growing because of spending by new customers, but also because existing customers are spending more. Aldi's most recent results showed its average basket size has grown close to £19, just behind Sainsbury's and Morrisons.
The parent companies of Aldi and Lidl are two of the biggest retailers on the continent. This means that they can use their scale and geographical reach to source goods across the continent. This buying power, together with the limited range of the stores makes Aldi and Lidl powerful rivals to the 'big four'.
They are private companies, operating a different business model compared with the listed Tesco, Sainsbury's and Morrisons. Aldi and Lidl are prepared to reinvest their profits into new stores and products while pressing their margins further down by cutting prices. However, Tesco, Sainsbury's and MOrrisons have dividends to pay and shareholders to please.
This is why the momentum behind Aldi and Lidl will be difficult to stop. The discounters now find themselves in a virtuous circle where rising revenues leads to investment into better stores, food and marketing, which in turn boosts revenues further.
The 'big four' allowed the discounters to sneak into this position by not offering enough help to hard-pressed customers.
With like-for-like sales declining in hypermarkets and online revenues growing, the 'big four' sought to protect their bottom line and their margins. The focused on defending themselves from each other - by introducing price-match schemes, for example - and took their eye off the progress Aldi and Lidl were making within their business.
The established grocery retailers still have powerful unique selling points to offer shoppers, including their choice, British heritage, and convenience.
But, with the exception of Sainsbury's and Waitrose, they have been unable to get this message across to shoppers, and many believe that Tesco has been unable to fill the gap with discounters despite the start of a price war.
In France, it has taken a radical back-to-basics overhaul to get Carrefour back on track, including deep price cuts and store revamps.
Carrefour, which rivals Resco for the position of the world's second-biggest retailer - this week reported an increase in like-for-like sales in France and in out -of-town hypermarkets.
The retailer has endured similar challenges to Tesco in the UK, but is about two years further down the turnaround cycle.
Aldi and Lidl, buoyed by growing sales at existing stores, plan to double their store numbers in the UK over the next decade. They are not going away.
In the UK, the most recent industry forecast predicts that sales for the discounters will almost double within five years. This would mean the discounters will account for more than 10% of money spent on groceries by 2019.
But perhaps the clearest evidence that the momentum behind discount retailing is unstoppable was provided by Sainsbury's. The company is to relaunch Netto as its own discount chain. If you can't beat them, join them.
From an article by Graham Ruddick in the Daily Telegraph, 18 July 2014.
And a few of my observations ...
I have noticed when I shop at the big four it's much more complicated to know what the deal is - for instance is 3 for the price of 2 better than buy one get one free! And there's too much choice in some areas.
Remembering to take my own bag or boxes for packing can be tedious. But then, we managed years ago, before carrier bags were provided by shops. If we forgot to take something to put our groceries in we loaded everything into the car loose, then got a box or bag when we got home and loaded up there.
I find the lack of choice at Aldi and Lidl means I still shop at 'the big four'. For instance, they don't sell easy cook brown rice, my decaf coffee, not much free-range meat.
But the bread is great, also the ham, vegetables and fruit, cheese and the soya milk is the best anywhere. And at which other supermarket could I have bought an excellent telescope for my husband's birthday a few years' ago for a mere £50.00!
In my part of town there are only a Tesco Express, Co-operative, Farm Foods, Morrisons and Aldi and further away Lidl and Asda. So little opportunity to shop at Tesco, Sainsburys, Waitrose or M&S. So perhaps these days distance to travel for supermarket shopping, both in petrol and time involved, may in future influence where we do our main shop.
What about older/disabled people? Not a lot of help in Aldi/Lidl where shoppers are rushed through the tills! In one of our local Aldi's the staff are more interested in talking to each other than helping/serving the customers.
There are no customer service desks, so if a customer has a problem then they have to try and collar an overworked 'colleague'.
And it's good for the 'big four' to have competition! There is definitely competition as regards price and also quality on items but so far as customer service is concerned then 'the big four' win hands down.
But I shall still keep shopping at Lidl (preferable to Aldi) because of the quality of the goods they do offer.