A no frills, small-format Aldi limited assortment discount grocery store in Spalding, UK, which is in the district of South Holland in the southern part of the county of Lincolnshire, about 110 miles from London, England.
Discount supermarkets in the United Kingdom (UK), including no frills, small-format grocers Aldi and Lidl, are seeing a sales surge as the weakening economy puts a crimp on consumer food budgets in the nation and market.
According to just-released market research data from respected UK international research firm TNS WorldPanel, Aldi- UK experienced year-on-year sales growth of about 19% in the 12 weeks to May 18, 2008, while small-format discount grocer Lidl saw sales growth of about 9%.
Both Aldi and Lidl are Germany-headquartered small-format, no frills discount grocers, offering a limited assortment of mostly store brand (but name brand as well) food and grocery products across all dry and perishables categories.
If the impressive Aldi and Lidl sales gains aren't enough to demonstrate a current shift in UK shopper choices and supermarket preferences in the price-impact retailer direction, two other price-focused discount grocery chains, Iceland and Farm Foods, also posted double-digit sales gains over the same 12 week period, according to TNS WorldPanel data.
One the other hand, Tesco, which is the leading food and grocery retailer in the UK, and Sainsbury's, the UK's number three supermarket chain, saw slight decreases in sales during the same period.
Aldi, which currently operates 300 of its limited assortment, price-impact, no frills small-format discount grocery stores in the UK, was the clear sales increase winner, according to TNS WorldPanel director of research Edward Garner. According to Garner, Aldi's 18.9% sales gain for the period translated to sales of ~577 million pounds.
Even more impressive, the grocer's market share rose from 2.5% to a current 2.8%, says Garner.
While a 2.8% share of the market isn't much in the grand scheme of things, compared to number one Tesco's 31.1% for example, Aldi continues sales period-after-sales period and year-after-year to grow its share of the market in the UK. Further, with only 300 stores, Aldi has about 20% of the total store count in the UK as Tesco has, and only slighlty more than that compared to number two Asda and number three Sainsbury's.
Aldi currently is in a major growth program in the UK, with plans to at least double the number of stores it has in the nation over the next 4 -to- 5 years.
Lidl also is growing its store count aggressively in the UK, and has shown regular sales increases, although not as high as Aldi's, for the last few years.
After Aldi, the next best performer for the 12-week period ending May 18 was Iceland, according to the TNS WorldPanel data. The price-impact grocer's sales increased by a healthy 12.2%, to ~352 million pounds for the sales reporting period, according to Gartner.
This is significant because Iceland hasn't been a player of note in UK food and grocery retailing. However it appears the current economic downturn in the nation, which is leading shoppers to choose more price-focused supermarkets, is benefiting the fledgling discount food retailer.
Farm Foods, another discount grocery chain that hasn't been much of a player historically in the market, saw its sales increase a significant 10.7%, to reach ~100 million pounds, a record for the price-focused supermarket chain.
Small-format discount grocer Lidl had the least sales increase of the four price-impact discount grocery chains. However, at 9.6% the German fighting tiger small-format grocer wasn't too far behind. Lidl's sales for the period were ~478 million pounds, not all that far behind Aldi's considering Lidl has fewer stores in the UK than fellow German grocer Aldi.
Despite the worsening economic conditions in the UK, taken as a whole the nation's supermarket chains still did fairly well, with sales up 6.6% overall in the 12-week period, according to TNS Worldpanel research director Garner.
Sector leader Tesco PLC saw a slight drop in market share of 0.2%, to 31.1% of the total food and grocery sales market, but still turned in period sales of ~6.4 billion pounds, which is a 6% year-on-year sales increase.
UK industry researchers and observers do say they are seeing a current shift from the mainstream supermarket sector--chains like Tesco, Asda, Sainsbury's and Morrisons--to price-focused discounters like Aldi, Lidl, Iceland and Farm Foods, with a particular shift to Aldi.
TNS Worldpanel's Garner says Aldi's heavy investment in new stores "is being rewarded with strong growth in the current climate."
"This is virtually solely fuelled by new shoppers visiting the stores rather than existing shoppers spending more," adds Garner in offering his estimation about UK shoppers' trending towards discount grocers like Aldi.
Aldi and Lidl are the two best positioned to grow their store counts and capitalize on it if this trend by more shoppers to shop discount grocers continues or increases. Both German chain's are heavily capitalized and growing rapidly internationally.
In fact, Tesco is so concerned about the threat from these two fighting small-format tigers it's currently in the process of designing its own small-format, limited assortment, no frills discount grocery chain in the UK.
Tesco operates the small-format Tesco Express format throughout the UK. But those stores are more of a hybrid neighborhood grocery store/convenience store rather than a no frills, price-impact small-format retail format. Therefore, they don't compete for the same general market that Aldi and Lidl do.
However, since Tesco's internal research started showing a couple years ago the Aldi and Lidl stores were cutting into sales in all its formats, the giant retailer decided to create its own small-format discount grocery store format. There's no word as to when the first store of the new format will open in the UK. Most market observers though say the first one should open by early next year if development continues on track. Tesco isn't currently talking about the project.
It's going to be interesting to see if the sales growth trend which currently is favoring the price-focused retailers in the UK continues into the next reporting period.
Most economists don't expect an improvement in the nation's economy for the rest of the year, so the climate and conditions should remain steady for a repeat perhaps of this period's sales numbers and direction. If not, perhaps the movement towards the price-impact food retailing sector in the UK will then be seen to be more of a fad than an actual trend.