Throughout 2020 we saw a shift in performance between the UK discounters, with Lidl growing much faster than Aldi. Traditionally Aldi has always been considered the more dominant discounter in the UK. It entered the market in 1990, four years ahead of Lidl, and since then has dominated the headlines about strong discounter growth. Over the years Aldi opened more stores and performed ahead of Lidl, but the tide has now begin to turn.
We look at this in more detail, considering how the discounters were impacted by COVID-19 and five reasons why Lidl is now outperforming Aldi.
Shoppers visited discounters less in 2020
2020 did not start well for the discounters. Both experienced a decline in footfall as shoppers were restricted and behaviour dramatically changed. Our ShopperVista research showed shoppers used fewer channels and visited the discounters less. This was driven by the desire to make the most out of every trip, and wanting to get all groceries from one store. The percentage of shoppers who claimed to have visited discounters in Oct-Dec '19 was 64%, this dipped to 57% in July-Sept '20. As the year came to a close shoppers began to gradually return to the discounters, with claimed usage reaching 61%, the highest level since March 2020.
Despite this drop in footfall, results from Kantar show that there was a big difference between how this impacted Aldi and Lidl. Only two retailers lost market share in 2020, Asda, and Aldi. Between January 26th 2020 and the twelve weeks to 27th December Aldi's market share dropped 0.5pp to 7.4%, from 7.9%. Lidl's share increased 0.2pp during this time to 6.1% from 5.9%.
Subscribers looking for more information on the latest Kantar results can access the latest GB market growth here.
Five reasons why Lidl is winning the discounter battle
1. Store environment and estate expansion
Lidl's store environment is more suited to cope with the challenges presented by COVID-19. Its average store size, at 14,000sq.ft. is larger than Aldi's, at 12,000sq.ft. The stores are therefore perceived as safer to shop, allowing more room for social distancing. Lidl has more self-service checkouts than Aldi, minimising the interaction with store staff.
Lidl also opened more stores in 2020 than Aldi, according to Retail Week. Lidl opened 39 net new stores, compared to Aldi's 31. Lidl has been primarily focused on expansion in the capital, with store openings such as Lidl Tottenham Court Road, London. With London's dense population, these stores are likely to be situated in heavy footfall locations which will significantly boost performance.
2. Shopper's perception on the big shop
With shoppers looking to reduce the number of stores they visit, being able to provide a wide enough range to do a full shop has become more essential during the pandemic. In previous years this has always been a struggle for the discounters, with shoppers using them mainly for top-up shops. Lidl has done a lot of work to change this perception, beginning with its 'Big on the Big shop' marketing in 2019. This paid off in 2020 as the campaign continued and helped drive shoppers into store.
Lidl has been continually working to improve its offer, and the results may now be reflecting this. For example, Lidl was the first to bring fresh bread into its stores and has more fresh bakeries than Aldi. This differentiation is likely to be more important as shoppers are unwilling to travel to other locations to find different categories.
3. Tesco's Aldi Price Match and low average selling price
Aldi came under direct attack from Tesco in March 2020 when it launched its 'Aldi Price Match' campaign. It has been heavily promoted on TV and in store, potentially having a significant impact on the discounter. It may have caused shoppers to go back to Tesco and realise they missed the choices the retailer offers, and also forgot how good the prices were.
Aldi's high value proposition may have also hampered performance in 2020. Its average grocery price per pack declined year-on-year for the retailer, according to Kantar. Lower prices will have negatively impacted Aldi, compared to Lidl, where average grocery price per pack increased. As Aldi will have had to sell more cheap products to reach the same turnover.
4. Difference in brand penetration
Lidl has higher brand penetration in its range. In times of uncertainty, when shoppers are seeking out what they know, they may favour Lidl because of this. Aldi has focused marketing on 'Like brands, only cheaper' and the money shoppers will save by swapping to them. Lidl on the other hand has focused on how it is 'Big on brands', widening its customer base by appealing to shoppers who are unwilling to trade down to private label.
5. Focusing on bricks and mortar over online
Both retailers used 2020 as a time to launch new initiatives. Lidl launched Lidl Plus and a Christmas promotion, using tactics to appeal to the savvy shopper.
Aldi launched click and collect and partnered with Deliveroo, aiming to appeal to the online shopper.
Both retailers have invested in new strategies, however Lidl's focus on bricks and mortar may have been more beneficial. Lidl is playing to its strengths, whereas Aldi is forcing itself out of its comfort zone.
The Lidl Plus app is rewarding loyalty. This is great during a time where shoppers are looking to retailers to support them more. It also helps to grow basket size and increase frequency of visit. We are expecting to see shoppers increasingly employing savvy shopping techniques as financial challenges continue throughout 2021. It will be important for Aldi to find new ways to appeal to these shoppers, as Lidl has done in 2020.
Although Aldi's increased online proposition appeals to shoppers looking for convenience, it presents a significant logistical challenge for the retailer and the benefits to its revenues have not yet been revealed.
What will 2021 look like for the discounters?
COVID-19 has created exceptional conditions and therefore a very unique trading environment. Both Lidl and Aldi are well poised to appeal to shoppers looking to save money, and both are continuing to open new stores.
However, Lidl undoubtedly has the greater momentum of the two retailers, and it is difficult to see this changing in a year where we are likely to experience further lockdowns that will continue to impact on behaviour.
Looking for more insight?
Check out the latest insights on Aldi and Lidl on our discount hub.
Subscribers can also access our latest insight presentation Discount global trends 2021 to find out more of what we expect to see at the discounters in 2021.