Customer-friendliness does not occur in the vocabulary of hard discounters. However, as consumers increasingly watch their wallets, they are likely to visit discounters more frequently.
Elsevier Food International, Vol. 6, Number 3, September 2008
Jos Poels

A few months ago, Lesley Allmark from Chester, UK, discovered Aldi at the local retail park. "Prices are considerably lower than at the other supermarkets here, like Safeway, Tesco and Sainsbury's," says the secretary who does most of the shopping for herself and her husband. "I was afraid that Aldi's product quality would be disappointing, because they stock products that you can't find in any other supermarket. But there's nothing wrong with them. Even the quality of the wine is very good. Unfortunately, Aldi doesn't stock everything and I still have to buy missing items from other supermarkets."
Since Aldi opened its first shop in Birmingham in 1990, it has become the UK's third largest discounter after Kwik Save (Somerfield) and Lidl.

Hard and soft discounters
Hard discounters, who are mainly found in Western Europe, can be defined as supermarkets with a selling space of around 1,000 square metres. Their range of products consists of a maximum of 1,400 SKUs, without exception fast movers, with fixed low prices. The vast majority of the selection consists of groceries. To limit the risk of loss (costs) as much as possible, there is only a minimum offer of fresh, chilled and frozen products. No A-brands are sold, or only on a very limited scale. Most products have been produced especially for the hard discounters under exclusive own labels. The ingredients of the products and the contents of the packaging make it difficult to make a fair comparison with popular products from service supermarkets. Every week, hard discounters have a small quantity of non-food items on special offer to draw customers. Customer-friendliness does not occur in the vocabulary of hard discounters. These supermarkets distinguish themselves by their basic and functional exterior and are usually not found at top locations. All based on the principle that the costs must be kept as low as possible. The products are offered for sale from pallets and outer packagings that have been cut open. The supermarkets have a minimum of staff and checkouts, with the inevitable consequence of long queues at the checkout. Discounters never issue loyalty cards. Average customers can do three quarters of their shopping at hard discounters. For other -usually more upmarket - products they are obliged to go elsewhere.
Besides hard discounters, there are also soft discounters. They have an average floor area of 1,500 square metres, with a product offering ranging from 1,400 to 7,000 articles, including a number of A-brands. However, the major part of the offering consists of grade-B and grade-C products and exclusive own labels. The shop presentation is less basic and functional than that of hard discounters. Soft discounters usually sell only ninety per cent of what customers need, obliging them to visit a second supermarket.

A German phenomenon
The origin of the discount formula lies in bombed-out post-war West Germany. In 1948, the brothers Theo and Karl Albrecht opened their first Albrecht Discount (Aldi) with a limited number of articles. At the time, Germany needed cheap groceries. "We very soon noticed that we didn't need an extensive range of products to do good business," said one of the Albrecht brothers in 1975, during a rare interview. "Compared to other companies we were able to keep costs very low as a result of our limited range of products. We then turned this notion into our objective. Today, we have an eleven per cent expense rate."
In 1950, the fixed low price became the second principle of the objectives of the Albrecht brothers. "This we were also compelled to do", said the Albrechts in 1975. "If we cannot offer our customers a broad range of products, we should be able to offer them another advantage. From that day on we have been selling our products considerably cheaper than the competition. "
Although Germany's spending power increased in great leaps from the fifties onwards, the discounting principle had taken root in the land of the Wirtschaftswunder. Aldi was growing steadily and in 1967, the Albrechts exported their formula for the first time. Austria was the first in a range of Western European countries. Because of the political balance of power in Europe, Aldi was unable to transplant its discounting principles to Eastern Europe until the nineties. At home, Aldi was helped in 1977 by the introduction of new building regulations. The German Baunutzungsverordnung (town planning regulations) ruled that all supermarkets larger than 1200 square metres would from then on need planning permission. As most Aldis are not that big, Aldi gained an enormous freedom at home compared to the competition.

Lidl copies Aldi
In the early seventies, Lidl, who had been selling food since the thirties, copied the Aldi sales principles. The first Lidl discount stores were opened in and around Ludwigshafen. Until the end of the eighties, Lidl looked to Germany for growth. Since then Lidl, which forms part of Schwarz Group, has spread across a large part of Western Europe. Lidl now has five thousand stores in Germany, Austria, Ireland, the United Kingdom, the Netherlands, Belgium, Spain, Portugal, Italy, Greece and Finland. Moreover, there are plans for further expansion in Scandinavia, the Baltic states and Central Europe. According to the latest figures from the European Discount Retailing report published by the Institute of Grocery Distribution (IGD), Aldi has an average annual turnover of €5.2 million, whilst Lidl averages €2.8 million. Aldi now has 6,000 stores in most countries of the European Union, with an average floor space of 695 square metres. Aldi ranks among the top five supermarkets in Germany, Austria, Belgium and the Netherlands. The German discounter is also active in the United Kingdom, Ireland, France, Luxembourg and Denmark, Australia and the United States.
On the German home market, the established supermarket organisations began competing with the two discount leaders relatively soon.
Tengelmann did so with Plus and Rewe with Penny. Also because of the fierce competition, discounting has become a typical German phenomenon. Meanwhile, German discounters claim some 40 per cent of the total home market for food. Aldi and Lidl have also smoothed the way for the emergence of discounters in other parts of Europe, initially only in Western Europe. According to IGD estimates, Europe numbers well over thirty thousand discounters. That is almost double the amount of 1991.

Counter reactions
The arrival and expected success of German discount specialists caused unrest on all European markets and provoked counter reactions. However, because every market reacts differently, no blueprint exists for warding off German discounters and protecting the own market.
In answer to the Germans and for fear of losing market share, a number of established retailers began marketing their own discount formulas and in turn exported them. French company Carrefour exported its discount formula Ed as Dia or Minipreco to other parts of Europe, but also to Central and South America.
Other European retailers have counterattacked by copying the method of working of Aldi and Lidl. Of the fifteen largest European top retailers, nine - including Aldi and Lidl - have their own discount formulas. Gradually, retailers are becoming inclined not to take over or reject the discounting principle. Some retailers have already thrown in the towel, as they discovered that discounting is also a sales method that needs a good deal of endurance to achieve success. Dutch retailer Laurus (taken over by the French Casino last year) has given up its "Lekker en Laag" discount formula and has sold the largest part of its Basismarkt to Lidl. Other retailers have started competing on price by including own labels in their range of products, which are between grade-A and grade- B products.
The group of strong European discounters after Aldi and Lidl is a very mixed bunch. There is a lot of movement and it seems justified to expect that in the next few years many things will change in the design, buying and selling of discount formulas. According to "European Discount Retailing" a report from the British IGD, for the majority discounting is not a core business. This is for instance the case with European discounter number three, the French Carrefour company. Of its annual turnover of €66.5 million, seven per cent is realised by discounters, spread across various countries. However, Minipreco from Carrefour is the leading discount formula in Portugal, as is Dia in Greece. In Spain, Dia ranks second on the list of best discounters.
Discounting is the core business of Spanish company Mercadona. This is Spain's number one discounter and every year it continues to realise a substantial increase in turnover. However, holding on to Spain as an operating base makes this retailer very vulnerable. In Italy EuroSpin has been building a discount empire since 1993. At the moment, they are the largest discounter, with some 500 supermarkets mainly in Northern and Central Italy. In Switzerland, where Aldi and Lidl are not represented, Denner has developed itself as the discount specialist.
Rewe and Tengelmann, both from Germany, are active in a large part of Europe, among other things with discounters. With Penny Markt, Rewe has developed a discount formula that proved suitable for export. The formula, which at home numbers some 2200 supermarkets, has crossed the border to France and Italy. In Austria, Mondo is the third largest discounter after Hofer (Aldi) and Zielpunkt (Tengelmann). Whilst in France Casino is rolling out its Leader Price formula to other parts of the continent.
At home, the German Tengelmann company uses Plus to compete with the other discounters'. The company owns well over 2600 stores. The formula was carried over to Spain and Portugal and is called Zielpunkt in Austria. However, Tengelmann is looking more towards Eastern Europe. Plus has already gained a foothold in Czechia, Hungary and Poland.

Scope for further growth
With the further opening up of Europe and the coming expansion of the European Union towards the east, all retailers are now targeting these growing markets.
Aldi and Lidl, whose core business is restricted to hard discounting, will continue to expand and maintain their leading position. In all probability, Lidl will continue to focus on Europe and target Scandinavia and Central Europe, whilst Aldi will try to expand outside Europe.
Retail giants like Casino, Carrefour and Ahold, for whom discounting is one of their many business segments, will nevertheless continue to invest in discounting. Their discounters will be extended to maintain their position in the countries where they are present. It can be expected that in the Netherlands, Casino will introduce Leader Price in answer to the success of Aldi and Lidl.
As consumers increasingly watch their wallets, they will visit discounters more frequently. Lesley Allmark in Chester: "As far as price is concerned, I wish I had discovered Aldi earlier, but not as far as queuing for checkouts is concerned. That's a disaster."