Retail Disruptors

The spectacular rise and

impact of the hard discounters

EFMI Business school

 EFMI FOOD RETAIL’S
HARD
DISCOUNT

FOOD
SPECIALTY ONLINE
STORES CHANNEL

HYPER COMPETITION IN
CONVENTIONAL LOW END
THE WORLD OF FOODSERVICE GROCERY (NON-FOOD)
GROCERY RETAIL CHANNEL RETAILERS RETAIL

THE WALL?
 “Retailing is the fine art
of separating consumers from
their money”
MY VIEW ON RETAIL MARKETS
MY VIEW ON RETAIL MARKETS

The “wish line”:

This is what most people want
MY VIEW ON RETAIL MARKETS

Organic
Convenience

Local
High quality & good taste
Fair trade
“Poor people need low prices, but
rich people love them”
MY VIEW ON RETAIL MARKETS

The “wish to pay” line

THIS RESULTS IN A ‘BELL-CURVED’ MARKET

Market size
MOST HOUSEHOLDS INCOMES ARE LIMITED – AND NOT EVENLY DISTRIBUTED
PURCHASING POWER OF MOST HOUSEHOLDS IS MEDIOCRE AND STABALAZING

Average income standard household Development of GDP per capita in EU

(purchasing power standard)
in the Netherlands
SO, MOST MARKETS IN FOOD RETAIL LOOK A BIT LIKE THIS

Market size

10-30% 50-75% 5-15%

THE MID-MARKET STILL HOLDS ‘THE BULK’ OF THE SALES

Market size

MID-MARKET

60-80% OF SALES
When markets mature the
‘Well curve’ becomes
more dominant
THE WELL-CURVE: POLARIZING CUSTOMERS
Growth poten8al

Average market
growth rate
POLARIZATION IS ALSO BASED ON CHANGING LABOR MARKET PERSPECTIVE
THE WELL-CURVE: POLARIZING CUSTOMERS
Growth poten8al

DISCOUNT DIGITAL

Average market
growth rate
THE WELL-CURVE: POLARIZING CUSTOMERS
Growth poten8al

CHEAPER MORE ADVANCED

Average market
growth rate
THE WELL-CURVE: POLARIZING CUSTOMERS
Growth poten8al

MORE
EASY TO SHOP EXPERIENCE

Average market
growth rate
“The rise and impact of the hard
discount business model”
THE SPECTACULAR RISE AND IMPACT OF HARD DISCOUNTERS

•  Hard discounters distinguish

themselves compared to regular
grocery retailers as follows
–  Very limited assortment
–  Strong focus on private labels
–  Small and ‘Spartan-like’ stores
–  Unbeatable price quality

•  In most countries traditional grocery

retailers consistently lose sales and
margin to hard discounters.
 HUGE IMPACT IN NETHERLANDS

MARKET SHARE ALDI AND LIDL 2000-2018

20%

10.9%
10.0%
10.3%
10.5%
16%

9.7%
9.0%
7.5%
6.7%
4.1%

5.4%
3.9%

5.6%
3.8%

4.8%
12%

3.5%

4.0%
2.8%
8.5% 1.9%

9.7%
7.5% 1.6%

9.6%

9.6%
9.5%
8%

9.1%

8.9%
8.5%
8.3%
7.9%
7.9%
7.6%
7.4%
7.4%
7.3%
7.0%

6.8%
6.7%
The impact of 4%

hard discounters
0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
EFMI Business school
Bron: Nielsen, 2018
FUTURE OUTLOOK: HARD DISCOUNTERS WILL BE QUALITY DISCOUNTERS

OPERATION ANIK0 1 Modern stores

2 Increased choice in vegetables &

fruit

3 In-store oven, freshly baked bread

ANIKO =ALDI NORD INSTORE
KONZEPT
4 Fresh meat in standing shelves
All Aldi-Nord stores in Europe
will me remodelled
5 Menu suggestions / recipies
Total remodelling cost: EUR 5,2
billion (EUR 1 mln per store)
6 More ready-to-eat assortment
ANIKO is based on 8 pillars
(see next)
7 More organic and fair trade

8 Energy saving refrigerators

OPERATION ANIKO: ALL ALDI NORD STORES WILL BE RENEWED

ANIKO-RENEWAL IN NL NUMBER OF STORES REMODELLED PER YEAR/MONTH

PER JAN 2019 35

193 30
29
25
25
24
23
20

15
16 16
14
299 10 12
10
9
5
6
REMODELLED TO ANIKO
3 3
(NOT) YET REMODELLED TO ANIKO 0
JAAR JAN FEB MRT APR MEI JUN JUL AUG SEP OKT NOV DEC
2017 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018

Bron: Inventarisatie EFMI Business School, december 2018

 DISRUPTIVE IMPACT IN THE UK

The impact of
hard discounters

EFMI Business school

 DISRUPTIVE IMPACT IN THE UK: 2015-2018

35
Jan-15 Dec-18
30

25

20

15

10

0
The impact of
hard discounters

EFMI Business school

IS THE US MARKET THE NEXT HARD DISCOUNT BATTLEGROUND?
The unique hard discount
business model

EFMI Business school

 THE IMPACT OF ROTATION

•  Hard discounter: 2.000 items, Euro 180.000 per store per
week, average price per item 1,80 -> rota%on 50 per item
per week
•  Conven8onal retailer: 20.000 items, Euro 240.000 per
store per week, average price per item 2,40 -> rota%on 5
per item per week

•  With regard to fresh products, what is the impact of the

difference in rota8on for:
•  Freshness and food waste?
•  Out-of-stock?
The impact of •  In-store handling costs?
hard discounters •  Working capital?
•  Buying office?

EFMI Business school

THE HARD DISCOUNTER BUSINESS MODEL

Low cost driver 1: Low cost driver 2: Low cost driver 3:
Efficient retail Knowledgeable and efficient
Efficient financial
opera8on procurement
management
Drivers of
compe88ve •  Low HQ costs •  Na8onal brand as quality •  Low capital intensity
•  Efficient warehouse and benchmark High sales per m2
sustainable transporta8on
• 
•  Buying large volumes at •  High rota8on -> good
advantages •  Efficient store opera8on low prices cash posi8on
•  Smart packaging •  Deep knowledge of supply •  Solid opera8ng income,
chain high ROI
 HUGE PRICE ADVANTAGE HARD DISCOUNTERS

The impact of
hard discounters

EFMI Business school

 AND QUALITY IS ALSO (VERY) GOOD

The impact of
hard discounters

EFMI Business school

THE HARD DISCOUNTER BUSINESS MODEL

Mul8plier
Large store network




Low cost driver 1: Low cost driver 2: Low cost driver 3:
Efficient retail Knowledgeable and efficient
Efficient financial
opera8on procurement
management
Drivers of
compe88ve •  Low HQ costs •  Na8onal brand as quality •  Low capital intensity
•  Efficient warehouse and benchmark High sales per m2
sustainable transporta8on
• 
•  Buying large volumes at •  High rota8on -> good
advantages •  Efficient store opera8on low prices cash posi8on
•  Smart packaging •  Deep knowledge of supply •  Solid opera8ng income,
chain high ROI
THE HARD DISCOUNTER BUSINESS MODEL

Customer value
Unbeatable price-quality
proposi8on

Mul8plier
Large store network




Low cost driver 1: Low cost driver 2: Low cost driver 3:
Efficient retail Knowledgeable and efficient
Efficient financial
opera8on procurement
management
Drivers of
compe88ve •  Low HQ costs •  Na8onal brand as quality •  Low capital intensity
•  Efficient warehouse and benchmark High sales per m2
sustainable transporta8on
• 
•  Buying large volumes at •  High rota8on -> good
advantages •  Efficient store opera8on low prices cash posi8on
•  Smart packaging •  Deep knowledge of supply •  Solid opera8ng income,
chain high ROI
 THE HARD DISCOUNTER BUSINESS MODEL

The impact of
hard discounters

EFMI Business school

 VERY SOLID FINANCIAL PERFORMANCE OF HD’S

The impact of
hard discounters

EFMI Business school

FINANCIAL PERFORMANCE BIEDRONKA
“How does hard discount growth
impact conventional retailers?”
 THE RETAIL SPACE MAP BEFORE HD ENTRANCE

The impact of
hard discounters

EFMI Business school

IMPACT OF HD’ER ENTRENCE ON SHOPPER DECISION MAKING PROCESS

Consumers tend to become more price focussed

and less focussed on added value
IMPACT OF HD’ER ENTRENCE ON SHOPPER DECISION MAKING PROCESS

Consumers tend to become more price focussed Consumers tend to evaluate conven8onal retailers
and less focussed on added value less on price and befer on added value
HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Low price High price

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet
spot

Low price High price

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet
spot

Conven8onal
retailer image
Low price High price

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet
spot

Conven8onal
retailer image
Low price High price
HD
image

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet
spot
New sweet Conven8onal
spot retailer image
Low price High price
HD
image

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet New CR

spot image
New sweet Conven8onal
spot retailer image
Low price High price
HD
image

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet New CR

spot image
New sweet Conven8onal
spot retailer image
Low price High price
HD
image

Low added value

HARD DISCOUNTERS CAUSE A ‘CONTRAST’ EFFECT

High added value

Ini8al sweet New CR

spot image
New sweet Conven8onal
spot retailer image
Low price High price
HD
image

Low added value

 HD HAVE CREATED THEIR OWN BLUE OCEAN

The impact of
hard discounters

EFMI Business school

DEVESTATING IMPACT OF HARD DISCOUNT GROWTH IN UK

35
Jan-15 Dec-18
30

25

20

15

10

0
HOW CAN CONVENTIONAL RETAILERS COUNTER HARD DISCOUNTERS?
STRATEGIC OPTIONS CONVENTIONAL RETAILERS
STRATEGIC OPTIONS CONVENTIONAL RETAILERS
Is TESCO now adopting a downgrading strategy for its main chain?
STRATEGIC OPTIONS CONVENTIONAL RETAILERS?
STRATEGIC OPTIONS CONVENTIONAL RETAILERS
HOW RETAILERS CAN CAPTURE MORE VALUE FROM NATIONAL BRANDS?
BRAND IMPORTANCE

CATEGORY IMPORTANCE
CATEGORY IMPORTANCE