Local hard discounters
Elsevier Food International Vol.8, No.2 May 2005
Pascal Kuipers
Hard discount was invented by Theo and Karl Albrecht who founded Aldi Discount in 1960. Their low-cost business model is a huge success, in Germany and abroad. Other multinational hard discount chains such as Lidl, Netto, Norma, Penny, Plus and Dia are all Aldi-clones with varying degrees of success. Locally, however, there are also hard discount chains trying to reinvent the model of the Aldi brothers.
In recent years, German retailer Schwarz expanded its hard discount chain Lidl throughout Europe. Especially in central and northern Europe there have been lots of discussions and speculations on when Lidl would open its first stores and what changes in the market could be expected. An interesting side effect is the rapid development in recent years of local discount activities, established as a defensive response to the expected threat of a multinational discount chain like Lidl.
A prime example is Finnish retailer Kesko, which recently opened several discount formats. In its domestic market, Kesko started the Cassa hard discount chain in February 2004. Kesko did this just over a year after Lidl opened its first stores in Finland (December 2002). In the Baltic states of Estonia and Latvia where Lidl is also expected to set up shop, Kesko did not wait until Lidl actually got started. In Latvia, Kesko set off its Supernetto discount chain in 2003. This is a copy of the Estonian Säästumarket discount chain, which Kesko acquired in 2001. Kesko reacted promptly when rumours on Lidl’s Baltic ambitions started in 2002, and accelerated new discount store openings both in Latvia and Estonia.
Kalervo Haapaniemi, president of Kesko Food, acknowledges that Cassa is a defensive move. “Cassa is set up to complete our format portfolio and to test a hard discount format in Finland, he says, stressing that Cassa started as a test. “We are the leading food retailer in Finland and we want to retain that position.”
Since January 2005, Rimi Baltic – the 50/50 joint venture of Kesko and ICA/Ahold – has been operational and this new company will further develop discount activities in the Baltics. “Now that we have started this joint venture, we will expand our discount format Supernetto also to Lithuania, says Haapaniemi. Lidl is already actively searching for real estate in the Baltics, so there the competitive battle is already being fought. The logo of Säästumarket in Estonia looks surprisingly similar to Lidl’s logo, so Lidl is clearly taken into account. “I won’t speculate about Lidl’s future impact””, replies Haapaniemi. “There are also other competitors. The Säästumarket logo is adopted by the founding owners of the chain. We have not changed it. As far as we know the Estonian authorities handle the logo case.”
The Turkish Aldi
French retailer Auchan started its ‘Au Marché Vrac’ hard-discount format in October 2003 in its search for new growth opportunities in its domestic market. Lacking both a neighbourhood store format and a discount format – according to the French trade magazine LSA both winning formats in France, which benefited Auchan’s rivals Carrefour and Casino – Auchan decided to combine both gaps in its portfolio by establishing a hybrid neighbourhood hard-discount store format. Due to its small size – less than 300 square metres of selling space – the store concept is protected from the strict government regulations.
In Turkey, the local discounter BIM is a clear example of a local hard discounter. In September 1995, the first two BIM stores were opened and since then the chain rapidly developed into a network of over 1,000 discount stores. On its website, BIM boasts of being as cost efficient as Aldi – having copied Aldi’s operational model – which earns its nickname ‘The Turkish Aldi’.
Former Aldi executive Dieter Brandes is responsible for BIM copying Aldi’s business model. “BIM is my copy of Aldi,” he says. “But what is a copy? I don’t know. Plus, Penny, Norma, Lidl, Netto, they are all copies of Aldi.” Brandes denounces the Turkish hard discounter Sok – a subsidiary of Turkey’s market leader Migros Türk – as “a bad copy of BIM”. According to Brandes, true and consistent simplicity is complex. “Problem for all who want to copy Aldi, is the ability to a consequent yet ascetic simplicity. Very disciplined and immune to all temptations. It’s as simple as that. But only a few can do it, as it is not easy.”
According to Brandes, the copy BIM outshines the original Aldi. “Aldi is about to cross the limits of discipline. This holds especially true for one of the Aldi Group’s operations, he says. “BIM is by now better managed than Aldi with structural increases in sales and profits.”
Rumours are heard that BIM – a private company for the major part owned by Azizler Holding – is up for sale. The proposed purchasing price would, however, still be too high. This rumour, however, was denied by Jos Simons, former manager of Aldi in the Netherlands and currently chief operating officer of BIM.
Hura! in the Balkans
In the Balkans, it is the Slovenian market leader Mercator which, after having more or less saturated its domestic potential with its network of superstores and supermarkets, opened its first Hura! hard discount store in September 2004. “Hura! is a hard discount format which we will develop in two sizes: one of 600 m² sales surface and a larger one of 1,000 m²,” says Marko Gvardjancic, director of the Hura! chain. “Research shows that there is quite a large percentage of customers in favour of discount sales in all the markets where we operate.”
With Hura!, Mercator aims for a market share of at least 20 per cent among discount stores in Slovenia, at least 40 discount stores by 2008 and expansion of its Hura! discount stores to Croatia, Bosnia and Herzegovina and Serbia and Montenegro.
Mercator’s business plan for the period 2005-2008 refers to “The arrival of stronger and global competition to all the markets of our operation.” Its 2005 business plan is more outspoken as it preludes the arrival of the famous German hard discounters aiming for Slovenia. “The competition on the markets where we operate has been strengthening and increasing. Foreign chains of hard discounts – Lidl, Eurospin, Hofer – have been entering the Slovenian market,” it reads.
Gvardjancic gives a noncommittal answer when asked about the impact of a possible market entry on Mercator’s plans with the Hura! chain. “Not only Lidl but the success of hard discounts as such made us adding the Hura! hard discount format to our portfolio,” he says. “We face competitors every day on all the locations where we operate. The competition is something to be respected but not afraid of.”
“Lidl is definitely preparing market entry in Slovenia, as it already has a local website and it is looking for sites and employees in the country,” says Bryan Roberts, global retail research manager at Planet Retail. “For Aldi, however, entering Slovenia would mean a break with its traditional strategy, as Aldi prefers to enter highly mature markets. Furthermore it would not use its Austrian name Hofer which has limited international appeal. In my view Aldi is more likely to be looking at Scandinavia first.”
Scandinavian scramble
Finland was the first Scandinavian country where a Lidl store was opened (December 2002), followed by Sweden (September 2003) and Norway (September 2004). In Denmark, where Aldi started decades ago in 1978, Lidl is expected to open stores in the second half of 2005.
In 2001, the Finnish co-operative SOK tested a hard discount concept under the Sentti banner, using for its logo identical colours as Lidl. After having opened two pilot stores, the Sentti experiment stopped as SOK experienced that hard discount was not in their line of business. They said they did not have the logistics to build a hard discount chain.
Kesko was more successful than SOK in testing a hard discount format in Finland. In February 2004, it opened its first Cassa pilot stores and one year later Kesko announced the opening of a further seven stores in the near future, bringing the total number of Cassa stores to 19. “The prices, the focussed assortment of Finnish brands and Euroshopper products and the locations which are convenient to customers, are Cassa’s success factors,” says Haapaniemi, who says that Kesko still has not decided to expand Cassa nationwide. Some of the Cassa stores are in direct competition with Lidl, but Haapaniemi refuses to comment on this. Besides Lidl and Cassa there are many local and regional independent discount operators in Finland, who have some 300 stores and sell food and food-related products. “We estimate that the market share of discount formats was around six per cent last year,” he says. “We believe that the discount market share in Finland will be about ten per cent at the end of 2006.”
According to Jim Cordts, editor of the Swedish trade publication Utblick, there was no hard discount culture in Scandinavia before Lidl. “Not even Aldi could make a difference when it entered Denmark in the mid 1970s,” he says. “Aldi was pushed aside by Netto, the discount concept of Dansk Supermarked. But now Scandinavian retailers are scrambling, due to the enormous media attention Lidl received. In Sweden for instance, every chain announced drastic price cuts. Price competition was stirred up because Lidl has become an issue.”
In February 2004, Swedish retailer Axfood opened its first ‘Willys hemma’ stores. These are discount stores located in neighbourhood areas (‘hemma’ means ‘at home’) and intend to compete with the advancing hard discount stores of Lidl and Netto. The latter are developed and operated by Netto Marknad, a 50/50 joint venture of Dansk Supermarked and ICA/Ahold. In May 2002, the first Swedish Netto discount store was opened and the current 59 stores with average selling space of 500 m² are clearly positioned as hard discount. Last February, Netto Marknad revealed plans to speed up its expansion in Sweden with an additional 125 to 150 new stores over the next five years.
Franchised hard discount
Originally Netto Marknad aimed to expand the Netto discount banner to Norway as well, but so far this has not happened. The Norwegian local hard discounters Europris and Max20 have been performing well. Europris is a hard discount chain in a franchise concept that was set up in 1992 by its three founders Wiggo Erichsen, Jan Egil Gulbrandsen and Terje Baltzersen, who together owned 50 per cent of the company. The other 50 per cent was owned by the wholesale company of Terje Høili, an importer and distributor of hard discount products. In 2001, Europris started Max20, a hard discount chain located in shopping centres. The stores are company-owned but the shop manager is usually a co-owner with a minority share.
In August 2004, Industri Kapital, a European private equity firm with Nordic roots, acquired 80 per cent of the shares of the wholesale company Terje Høili, and the franchise rights of Europris and Max20. ‘Ekstrem Lavpris’ (extreme low price) is the significant name of the new discount company in which the former owners still hold a 20 per cent share. “The discount retail market in Norway possesses significant growth opportunities due to increased price awareness amongst Norwegian consumers,” commented Industri Kapital’s deputy director Trygve Grindheim. “We believe that Europris has the long term potential to increase the number of outlets to 200 and Max20 to 100.” Odd Sverre Arnøy, managing director of Europris and Max20 looked at efficiency gains due to an integration of the operations of both chains. “This will further increase the competitiveness of Europris and Max20 and it will enhance our possibilities to continue developing our position as the leading hard discount retail chains in Norway.”
Lidl Lookalikes
Säästumarket and Sentti are discount activities in Estonia and Finland which have in common that their logos are undoubtedly inspired by the Lidl logo. Sentti was tested in 2001 in Finland by the cooperative retailer SOK who ended the pilot due to logistic troubles. Säästumarket is the Estonian banner of Rimi Baltic – the 50/50 joint venture of Kesko and ICA/Ahold. The logo dispute between Rimi Baltic and Lidl is being investigated by Estonian authorities.
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