The COVID-19 pandemic proved to be a challenge, but also an opportunity to accelerate development for discounters. In several markets with high penetration of online, such as the UK, the lack of ecommerce proved to be a weakness for the discount channel. However, the value proposition of the channel resonated well with increasingly savvier shoppers, ensuring footfall and sales remained strong.
Overall, 2020 challenged discounters to take some time to stop and review their strategies. In the second half of the year, we saw several test and learn strategies emerging around store concepts, assortment and online services. These will continue into 2021.
We recently published our discount trends for 2021 report, looking at what will shape the channel globally this year. As expected, the online and digital transformation made it to the list, but this won’t be the major trend in 2021.
Championing value and physical retail first will be the major trends shaping the channel. This might sound surprising but in a more competitive environment why not play to your strengths and try to make them even stronger?
Below is an overview of three of the five trends that are expected to shape the channel in 2021. IGD Retail Analysis subscribers can access the full report here.
Low prices and value credentials supported by heavy marketing campaigns are back at the heart of the channel after years of focus on other topics, such as quality and choice. This trend will heavily shape the channel, as leading discounters will seek to provide shoppers with the best value for their money.
With a growing number of shoppers looking for value due to the challenging economic environment, discounters will make sure to showcase their low-price credentials digitally and in-store.
We expect digital solutions to be more widely used. The Lidl Plus and Netto + (Denmark) loyalty programmes are ones to closely watch as they could offer opportunities for branded suppliers to drive their sales further.
More automated and efficient solutions, throughout the supply chain and in-stores including stock monitoring are also expected to be tested and potentially rolled out to drive value for shoppers and profitability for discounters.
Back to stores: physical first
The second trend expected to shape the channel emphasizes on the importance of the physical store. Discounters will continue to invest in their already efficient store model with the aim to create future proof network.
Due to the limited ecommerce capabilities of the channel, especially in Europe and the challenge to launch profitable online solutions, the physical store will remain the strongest asset. We expect discounter to invest in the following areas:
- More sustainable buildings (energy savvy, recycled materials,…)
- Greater use of technology and digital solutions(e.g. electronic shelf labels, automated crowd monitoring solutions)
- Better fixtures, display and enhanced design
- Faster payment solutions (e.g. self-checkout, scan and go)
Overall discounters will be focusing on improving the shopping experience to continue to drive footfall. They will also be flexing their store format to better adapt to various environment, especially suburban and urban areas.
To online and beyond
Will the channel finally launch broad ecommerce solutions? This depends on the online penetration in a given market. Why would discounters be investing in the online channel where profitability is difficult to reach and in markets where online grocery sales only account for a fraction of the entire grocery market? The discount channel focuses on efficiency and profitability, so online does not currently align with this strategy.
Source: Dollar General
In several markets, such as the US and the UK, discounters have launched ecommerce because there is a very strong demand from shoppers and the penetration of online is high. In the other markets in Europe, the prospect is less likely, except if the likes of Penny, Aldi and Lidl develop a profitable model. The region to watch to understand what online at discounters could look like is Latin America. There, Ara, Dia, Bodegua Aurrera and others are offering various grocery ecommerce services including home delivery and even dark stores.
We will see more discounters launching grocery ecommerce services in 2021, but it will take more time before European discounters fully launch online services. However, with many technologies and services becoming more mainstream, discounters could be exploring new services beyond ecommerce: A Lidl marketplace? Aldi online services? Purely hypothetic several years ago, not so much nowadays
If you’d like to see all of our trends, or get more detail, or see examples from retailers and suppliers from across the world, then IGD Retail Analysis subscribers can read the report here.