Discounters across Europe including Aldi Sud, Aldi Nord and Biedronka are opening doors to branded manufacturers and listing more of their brands, while branded manufacturers are increasingly willing to list their product on discounters’ shelves. Why is that?
Nestle, P&G and Unilever at Aldi
Nestle and P&G in Germany have cooperated with Aldi Sud for a while, however, the number of SKUs listed on the discounter’s shelves has increased in the last 12 months. Today, Nestle offers Nesquik, Smarties and Wagner-Pizza, while P&G lists Blend-a-med, Lenor, Pampers, Ariel, Always and most recently Head & Shoulders at Aldi Sud. It has also expanded its offer at Aldi Nord with listings of Ariel, Head & Shoulders and Pampers.
Unilever, which was reluctant in the past to list its brands at discounters has changed its strategy last week and listed Knorr, Langnese-Magnum and Duschdas at Aldi Sud and Aldi Nord. With this strategic change Unilever will be competing for the first time ever with its rivals like Nivea at discounters' shelves, but it also indicates a radical development in the grocery retail market.
Shopper centric discounters
To sustain their growth, discounters are adapting their store concepts to shoppers’ needs and expectations. Lidl has been rolling out its new store concept across Europe (Lidl future store UK store report), while Aldi Sud is testing a new concept in Germany (Aldi Sud store report) and Aldi Nord in Spain (store report). Meanwhile Jeronimo Martins looks to convenience at its Biedronka stores in Poland (A day with Biedronka report). In addition, they are adapting their product ranges and offer to provide what shoppers want to see on the shelves – branded products.
Branded manufacturers taking the risk
Manufacturers realise the power of the changing discount channel and cannot risk missing the opportunity to grow. At the same time, not being listed with discounters provides an opportunity to another branded manufacturer or even worse, help the discounter to boost its private label product offer.
Being under that pressure, branded manufacturers are increasingly willing to take higher risks than ever and list their brands at discounters. This can be a winning strategy as proved by Haribo and Ferrero, but it also exposes manufacturers to price spirals, price erosion and deteriorating relationships with other retailers.
As we saw in Germany last year, Red Bull’s price of a can of Red Bull dropped by 36% within a couple of weeks after it was listed by Aldi Sud, while Metro Group’s Real hypermarkets delisted the product.
Similarly, Nestle’s listing of Wagner Pizza by Aldi Sud this year led to a downward price spiral as Lidl and Kaufland reacted immediately to the listing at Aldi Sud and decreased Aldi’s EUR2.29 price point by EUR0.30 which was EUR0.60 less than the initial Lidl price and EUR0.70 less than the initial Kaufland price.
Who is the winner?
The new branded product listings at discounters have caused turmoil in the German grocery retail market, while it is too early to say who has benefited from the entire situation. The ability of manufacturers to differentiate their products and the pace in which they can do it may determine the winner.
What we could foresee, however, is that similar developments could happen in other markets where Aldi and Lid compete with each other also.
|Miloš Ryba is a Senior Retail Analyst International at IGD, leading the Discount and CEE research programme. Miloš has been analysing global retailers and emerging markets for more than a decade. He regularly presents at leading conferences in Europe, Middle East and Asia and features in European and North American media.|
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