Growth of discount sector a potential boon for own brand suppliers

NEW YORK — Discount retail is a high-growth sector given the number of new stores being built around the country, including the emergence of Lidl in the United States. The prominence of own brands within these value-oriented centers is becoming increasingly important to the overall strategic mix. Doug Koontz, research director and head of content at PlanetRetail RNG touched on these two points last week during a webcast hosted by GMDC.

Specifically, there are three factors supporting the expansion of discount retail, Koontz suggested. First, there is a movement of households into more urbanized environments, driving a need for more convenience-oriented, value-laden shopping experiences. "It accelerates the need for proximity," Koontz said. "[Consumers] are looking for convenient, often smaller stores that can be nestled into a neighborhood."

"Discount is going to stay true to its business model of low cost, simplicity, efficiency and operational execution.”

Second, families are getting smaller. That factor has affected the club market significantly as these smaller family units seek greater value in smaller packaging.

And third, the high cost of health care is driving many consumers in search of affordable health-and-wellness solutions. "It remains a focus globally," Koontz said. "It's a huge theme in the developed world, in particular [with] higher income shoppers," he said. "Obviously, discount is not one that's known for [delivering] health-and-wellness, but it's something they're starting to wrap their heads around."

The value inherent in the own brand proposition will help fuel the appeal of discounters, especially as Lidl extends its footprint in the United States. In fact, the proliferation of Lidl represents a broader trend, Koontz suggested, the "premiumization" of discounters. Discounters are creating retail shopping experiences that appeal to shoppers who can splurge a little as much as they do to shoppers who need to stick to tighter budgets. Koontz added that discount is really trying to keep that low-cost model while evolving so it remains an attractive place at which to shop.

"[For example], the wine section in the latest Lidl is expansive," Koontz said. "The merchandising is [focused] on education, wine pairings [and] food recommendations. There are tiers. You can see the displays within the merchandising themselves are a little nicer than you might expect," he said. "It's indicative of how the discount channel is not only positioning itself to capture low-income consumers, but also working really hard to attract a lot of those middle income and even upper-middle income shoppers that historically have just gone to the local supermarket."

Currently, discount represents approximately a 7.5% dollar share of food, according to PlanetRetail RNG, and that's something that Lidl, with its predominant own brand product mix (90%), will challenge. "In the United States, the [Lidl] format is a little bigger than what they have in Europe [with about] 4,500 SKUs," Koontz said. "There are 10 brands of pickles, all private label, in Lidl. That's a fun fact for you. It's indicative of how they're adapting their assortment."

"We are in a state of evolution for discounters, there's no doubt about that," Koontz said. "Discount is going to stay true to its business model of low cost, simplicity, efficiency and operational execution," he said. "Scale is what powers that low-cost model."

 

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