The rise and rise of the seafood discounter

Published on
July 13, 2015

Not very long ago, a small handful of supermarket giants used to lead the U.K. grocery sector quite comfortably, but over the past five years they have lost considerable ground to the heavy discounters, most notably Aldi and Lidl, and the ongoing and very bloody supermarket price war is playing even more into their hands. It’s estimated that one in two U.K. households now shop at these stores on a regular basis.

The latest Kantar Worldpanel figures, published for the 12 weeks ending 21 June 2015, confirmed that Aldi and Lidl are continuing to take share away from the competition. The two German-based companies increased their sales by 15.4 percent and 9.1 percent year-on-year, respectively. Aldi reached a new high with a 5.5 percent share of the market, making it the United Kingdom’s sixth largest retailer, while Lidl’s market share has increased to 3.9 percent.

Their combined 9.4 percent share of the U.K. grocery market is up from 5.4 percent in 2012, and forecasts suggest that the so-called “big four” of Tesco, Asda, Sainsbury’s and Morrisons could lose as much as 4 percent of their market share each year through to 2020. By that stage, Aldi and Lidl could have a combined market share of 15 percent.

Having added 3 million new shoppers last year – performing particularly strongly in the fresh foods and packaged grocery categories – both companies have also confirmed plans to significantly increase their store numbers in this and future years.

The big question is, where does seafood fit into the discounter model? The good news is both Aldi and Lidl sell fish, and an increasing amount of it – judging by the supply contracts announced this past year. And the suppliers that do deal with them say they are perhaps more realistic with their margin aspirations.

The challenge for the broader U.K. seafood sector is finding sufficient scope to operate profitably in a market where groceries are on average now 1.7 percent cheaper than a year ago but strong seafood inflation is making products increasingly expensive compared to other center plate proteins.

At the same time, it’s not enough to take the discounters simply on price as frozen food retailer Iceland has discovered. Last year, it took the decision to reduce the price of 800 frozen food items from GBP 1 (EUR 1.41; USD 1.56) to GBP 0.89 (EUR 1.25; USD 1.39) and opened 30 new stores. Last month, it reported that its profits had fallen by a quarter, with CEO Malcolm Walker citing an “exceptionally challenging” year for the group and for U.K. food retail in general “in the face of food price deflation, intense competition and significant change in consumers’ shopping habits.”

Iceland’s failed attempt showed there is more to it than what has been termed as “the boom of the budget buyer.” It learned that post-recession shoppers want a bargain but they also won’t compromise on quality.

Neither discounter is new to the United Kingdom. In fact, Aldi celebrates its 25th anniversary in the market this year. But both are offering far better shopping experiences than before, introducing better private labels, more brands, more choice and new departments, including fish. These factors, along with heavy marketing, have won over shoppers.

In offering luxury foods at cheaper prices, the discounters are reeling in the more affluent middle-class shoppers too. Many will recall the whole, cooked lobsters at GBP 5 (EUR 7.04; USD 7.80) and the 100g jar of caviar at GBP 1.49 (EUR 2.10; USD 2.33) that Aldi had on sale last year, scoring plenty of publicity in the process. It should also be noted that they are selling an increased number of sustainably-certified products.

According to Nielsen Homescan data, published by the U.K. Seafish authority, connected consumers will become more demanding in the future. The market research company also believes that retailer strategies will continue to change as supermarkets need to find ways to differentiate that are not around price reductions.

It has often been suggested by research findings that retail strategies for seafood should center on the creation of products that address main shopper barriers to the category, such as minimal handling and preparation of the product, ease of cooking and containing smell though innovative packaging. With the widespread emergence of uncompromising, savvy shoppers, products should also focus on premium and offer consistent quality and value for money.

Nielsen recently valued the U.K. food retail market at GBP 145 billion (EUR 204.1 billion; USD 226.3 billion) for 2014, a drop of 0.6 percent on the previous year, although its figures do not include discounters’ revenues. Looking ahead to the next 12 months, it believes grocery sales will increase this year and in 2016 but not at levels above inflation.

Contributing Editor reporting from London, UK

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