How will discounters respond to online?

Date : 18 January 2021

Maxime Delacour

Senior Retail Analyst

The COVID-19 pandemic has accelerated the development and evolution of retailers across the world. For the discount channel, one of the biggest changes in 2020 has been the acceleration of developing online services, to catch up with other non-discounter competitors and meet shoppers’ expectations.

With profitability being at the heart of the discount model and a key measure of success, the main question for discounters is what solutions are likely to be rolled out?

We recently published a report looking at how discounters will respond to online. From click and collect, to dark stores and micro-fulfillment centres, we explore different online solutions and the likeliness of an implementation by discounters.

Whilst we often observe Europe and North America to understand the latest development for the discount channel, it is also worth considering the Latin American discounters. We released another report looking at the evolution of the discount channel in Latin America, which covers the latest online, private label and in-store developments, including their latest online, private label and store development.

What online solutions are we seeing in Europe and North America?

Thinking the discount channel does not offer grocery ecommerce would be a mistake. Aldi USA offers click and collect at more than 600 stores, Lidl has partnered with picking and delivery specialists in Italy and Ireland, and Mercadona operates its own delivery service in Spain. 

In Germany, Spain, and Italy the online channel represents less than 2% of the grocery retail industry. Therefore, there are still challenges for retailers to quickly reach the scale necessary for their online operations to be profitable. 

 

Source: Aldi UK

 

As previously mentioned, the key measure of the success for online will be profitability not “just” offering a service that will meet shoppers’ needs. Our recent series of reports on online profitability review different services and models of fulfillment. Among the various models likely to be rolled out by discounters, we are seeing the following two:

  • Click and collect: this solution is currently being rolled out by Aldi in the US and the UK. It benefits from avoiding the high costs of last mile delivery. Orders are picked in either dedicated warehouses or directly in-stores, which has different pros and cons
  • In-store picking and last mile delivery: Lidl is one of a few discounters that have chosen to partner with a picking and delivery specialist. These companies manage the end-to-end process, meaning low investment required from the retailer

If you’d like to understand how click and collect, home delivery, micro fulfillment centres and other online models are likely to be rolled out in the discount channel globally, then IGD Retail Analysis subscribers can read our report here.

What are we seeing in Latin America?

The conditions of the pandemic have rapidly accelerated the digital transformation of discounters in Latin America. A greater need for ecommerce and home delivery meant that retailers had to adapt their business model to offer this.

To quickly pivot and offer home delivery, several discounters formed alliances with third-party, last mile delivery businesses. DIA in Argentina took this a further by opening two dark stores, shortening the last mile for deliveries in Buenos Aires.

Ara partners with last miler Cornershop

Source: Ara

 

Walmart Mexico managing the end-to-end process

While most discounters were offering delivery via third parties, Walmart Mexico (Walmex) developed its own solution. Walmex worked with Instaleap (a last mile logistics software developer) to develop a piece of software it could use to manage and fulfil its own delivery service. In Q3 2020 the business launched its ‘Despensa a tu casa’ (pantry to your home) service, for grocery deliveries. This was initially offered from 30 stores, but quickly extended to over 100.

Source: Walmex

 

Discounters launching websites and apps

Once the discounters had embedded their delivery solution, they quickly developed and launched their own websites and apps. These are being used for ecommerce and for the retailers to promote their latest in-store offers.

Some of the more established apps are being used to drive customer loyalty. For example, in Brazil, DIA gives its ClubDIA app users exclusive money off coupons, which can be downloaded and redeemed in store.

Engagement through social media

Being active on social media was unthinkable for some of Latin American discounters a couple of years’ back, particularly for the hard discounters. However, this was something we witnessed more of in 2020, as more customers migrated online. Social media is being increasingly used to showcase the discounters’ latest promotions and to re-direct people to their own ecommerce platforms.

How do we expect this to evolve?

In the medium-term, we expect to see more personalisation through apps, such as targeted promotions. The retailers will be looking to drive loyalty and engagement across multiple platforms (i.e., in-store, via apps, websites, and social media). In a post pandemic world, the discounters are likely to run exclusive in-store only promotions, which will be promoted across digital channels, to encourage footfall back in the physical store.

Want to keep up with the latest news from the discount channel?

 

 

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In this report we explore several online grocery models and services and share our views on the likeliness of their roll out by discounters. We will also review what solutions several different discounters have already tested and are rolling out in Europe, North America and Latin America.

In this report we look at each of the major discounters and highlight their latest developments.

See the latest industry news on Latin America.