The retailer’s perspective

[Click here for Part 1 - Manufacturer's perspective]

No-compromise supermarkets, offering both low prices and high quality, are sweeping the European markets. Hard discounters are offering more value without losing their low prices. Such chains are building dominant positions, with harsh effects, as full-service supermarkets, hypermarkets and department stores are learning the hard way.

Once they were innovative concepts: full-service supermarkets, hypermarkets and department stores. However, their inability to adapt to changing market conditions will irreversibly lead to their demise. Yet, the formats of the future will manage to offer a shopping experience where shoppers compromise neither on quality, nor on price.
Until recently in most European markets, consumers were forced to accept at least one compromise when shopping for their daily needs. They either focused on low prices – accepting the compromise of low value – or they opted for high value – accepting high prices. No-compromise supermarkets put an end to this by offering shoppers the best of both: high value as well as low prices. This is a hard to beat offer and therefore no-compromise chains are managing to take over Europe’s food and grocery retail markets.

From non-food to food
No-compromise retailing is not new. In non-food, no-compromise chains have been reigning already for years. In furniture, fashion and electronics retailing, chains like Ikea, Zara, H&M and MediaMarkt have built strong positions. This to the detriment of the once-mighty mass-market department stores which are dying all over Europe. They were the kings of the early and middle 20th century, representing the no-compromise format of their times: high value, huge assortment, low prices, and at the crossroads of consumer traffic, the high streets.
In food, the no-compromise trend has crept up on many countries already. Chains like Tesco (UK), Colruyt (Belgium), Kaufland (Germany), Jumbo (Netherlands) and Willy’s (Sweden) have succeeded in adding higher and higher value, at lower and lower prices. And in all markets, they developed via a similar pattern. Chains like Colruyt or Jumbo for instance have been arrogantly neglected by traditional retailers for years. Their small national market shares obscured their impressively high local market shares. And then, all of a sudden, such no-compromise chains reached the tipping point. Via cunning marketing strategies, exposing full service supermarkets as being too expensive for what they offer, these no-compromise players grew impressively and structurally changed the whole market.

From discount to no-compromise
Hard discounters also adapt to no-compromise rapidly, as hard discounter Lidl (Schwarz Group) shows in Germany. By offering better locations, ample parking space, a bakery, fresh food, carefully selected items from national brands and assortment extensions they have become the ultimate neighbourhood supermarket, with share of wallet between 80 and 90 per cent. By looking at the sheer numbers, one can indeed say that Lidl in Germany does not offer what a proper ‘Vollsortiment’ supermarket (as the Germans refer to traditional full service supermarkets) can offer. However, customer perception tells a totally different story. The 2,600 SKUs that Lidl has on the shelves offer almost everything a consumer may want. If you assume that the average German Vollsortiment supermarket has five to six brands per product variety, the 2,600 SKUs at Lidl would translate into 12,500 or 15,000 SKUs in a Vollsortiment supermarket!
The alleged low-value product quality of the hard discounters belongs to the old days as well. On the contrary, in markets where the formerly called ‘hard discounters’ have a sizable part of the market, the consumer has a distinct preference for their products. Judged on product level, these retailers are already no-compromise in that they not only offer low prices, but good quality products as well. In this way, these discounters have become no-compromise supermarkets, with shares of wallet in the primary customer groups that many full service supermarkets can only dream of.

The losers
The losers can be found among the old-fashioned full-service supermarket formats. Full-service supermarkets are at the end of their lifecycle due to their inability to adapt fundamentally to the no-compromise trend. Their inefficient range is a nightmare to anyone with merchandising expertise. In the UK, the no-compromise position of Tesco makes life difficult for Sainsbury’s but also for ALDI who – in response – is adding value to its assortment. In Belgium, Colruyt is successful to the detriment of GB and Carrefour. In the Netherlands, regional no-compromise chains like Jumbo, Dirk and Nettorama have been more dangerous to Albert Heijn than ALDI. And the failure of Laurus (of which the French retailer Casino is still the largest shareholder) to make the strategic shift to become no-compromise led to its demise just a few months ago. In Germany, the low shares of wallet of Edeka and Rewe have one simple explanation: no-compromise rules (e.g. Lidl, Kaufland and ALDI). In Scandinavia, Coop Norden is in long-term trouble for the same reason.
Furthermore, hypermarkets are on the losing side. Real – the hypermarket format of German retail giant Metro Group – and Carrefour for example, are in deep trouble at this very moment. Hypermarkets face the same fundamental problems that the department stores ran into 20 years ago. The European hypermarkets were once the no-compromise formats of their day but their high-value/ low-price position of yesteryear has been eroded by the new generation of no-compromise retailers. Their large stores are now regarded as inefficient shopping. Car-accessibility has turned against itself because of traffic jams. Their huge assortment has now become incomprehensible and does not perceivably offer more value. And last but not least: they have lost their lowest-prices position.

Finding a way out
Forget the name ‘full-service supermarket’
This name wrongly suggests that these stores would offer more service and more value than the no-compromise formats. In most cases, the name ‘full-service supermarket’ is just a sorry excuse to allow for high costs, which the retailer translates in charging higher consumer prices.

Think share of wallet
Many full-service supermarkets think (inward-oriented) in terms of sales-volume, and forget that in the end, high shares of wallet are the key. They proudly proclaim that they are full-service supermarket while sitting on a smaller and smaller island of share of wallet.

Be the boss of your own shelves
You have to stop the power of FMCG brands, or – even better – create a forceful multi-layered own-brand policy based on a trusted store concept. That is the key to a much more efficient and targeted assortment, without compromising the width. Freeing shelf-space of unnecessary doubled-up brands can only be achieved if you offer width in return.

Forget the term buying power
There is nothing wrong with good old buying power. Unless it obscures sales power. Many European full service supermarkets clutter their shelves with unnecessary assortment, most of which are slow movers. They proudly state that they have negotiated the best prices… but they will be surprised to see how their buying power will increase once they raise their sales-power!

Ownership & organisation
Inferior quality of decision-making via slow and politicised organisations, prevents many mainstream retailers from moving to the no-compromise corner. This holds especially true for cooperative retailers that are often loose-knit and notoriously bad at fast and high-quality decision-making. Moreover, public companies experience that the demands of the stock exchange do not always bring out the best. Such retailers do not stand a chance having to compete with privately-owned, often family-run companies with the right no-compromise attitude. They are the most capable of creating strategic and operational stability, while keeping cost levels low. Family-run retailers think in years, rather than quarters. This results in a better consumer-loyalty than the zigzagging of public retailers who need to satisfy the latest hypes of shareholders.

The European-wide trend towards the No-Compromise Corner

Old positioning – Retailers in the past chose their position either in the lower left hand corner, or the upper right hand corner. Always resulting in compromises for the consumer. Hard discounters in the lower-left-corner, full service supermarkets in the upper-right corner. The No-compromises corner was always deemed to be unreachable.

New positioning – Everybody who wants to be succesfull is moving to the lower-right corner. Aldi, but especially Lidl is moving to the right. Colruyt too. Tesco made that move already years ago. Regional no-compromise chains like Dirk and Jumbo in Holland forced old-fashioned full-service supermarkets like Albert Heijn down. Willy’s in Sweden too.

Belgium – Colruyt defines the market with a distinctly No-compromise position. Carrefour, the hypermarket chain, loses its former No-compromise position. GB is in the danger-corner.








Netherlands – Why Laurus died, is clear. Albert Heijn had to move down. Not because one chain in the No-compromise corner, but because of a score of SuperUnie chains, of which Jumbo is one of the most prominent members.








Sweden – Willy’s defines the market with a distinctly No-compromise position. Coop Norden, with its decades old problems is in the danger zone. Ica can only stay in their upper-right hand position because of the relative inefficient total retail. Once Willy’s has reached the tipping point, Ica will be forced to move down, just like their sister company Albert Heijn.





Germany – Kaufland, but also Lidl, which is moving to the right, defines the No-compromise segment. Edeka and Rewe are left high and dry in the upper right hand corner, in all locations where Kaufland and Lidl rule.








UK – Because of Tesco and Asda, the relative position of Aldi is less convincing than in other European countries. Waitrose and M&S move more to the right than high value formats elsewhere in Europe.