Déjà vu Retailing‭ on a Different Scale

Jim Prevor - The Fruits of Thought

Jim Prevor - The Fruits of ThoughtIt is worth paying attention to Yogi Berra‭, ‬whose biographer‭, ‬Allen Barra‭, ‬explained had‭ ‬“the winningest career in American sports‭.‬”‭ ‬Yogi had 10 World Series rings‭, ‬more than anyone else‭, ‬was named MVP more times than any baseball player‭, ‬save the drug-discredited Barry Bonds‭, ‬and he has a panoply of other wins to his credit‭. ‬Yet he is famous as much for his‭ ‬“Yogisms”‭ ‬as his athletic performance‭. ‬Many are useful in business‭:‬

“When you come to a fork in the road‭ ‬‮…‬‭ ‬take it”‭ ‬‮–‬‭ ‬good advice for business executives on the necessity of making choices‭.‬

“You can observe a lot by watching”‭ ‬‮–‬‭ ‬yet an awful lot of executives don’t bother to get out and see things beyond their immediate interests‭.‬

“It’s déjà vu all over again”‭ ‬‮–‬‭ ‬comes to mind as we look at the situation with Aldi and Lidl‭.‬

These so called‭ ‬“deep discounters”‭ ‬seem by every predictable metric to likely be the growth story of the next decade‭, ‬maybe two‭. ‬Aldi is already the fastest growing food chain in America‭, ‬and Lidl is about to burst out and likely take that title away from Aldi‭, ‬as Lidl starts with a smaller base‭. ‬With more than 1,600‭ ‬U.S‭. ‬stores‭, ‬Aldi already has some critical mass‭, ‬and Lidl has announced plans to open 100‭ ‬stores along the East Coast‭ ‬‮–‬‭ ‬but with 10,000‭ ‬stores across Europe‭, ‬the potential in the United States seems vast‭.‬

Although discount prices are a calling card for these concepts‭, ‬in places such as the United Kingdom the stores have evolved to‭ ‬be attractive to a more upscale demographic‭ ‬‮–‬‭ ‬maybe not for all purchases but‭, ‬certainly‭, ‬a key to success has been making sure‭ ‬shoppers are not embarrassed to say they bought items at these stores‭.‬

Though private label is dominant‭, ‬Aldi produce departments often have the most prominent brands in the USA displayed openly‭.‬

In its leaks to journalists and public pronouncements‭, ‬Lidl is trying to align itself with the product quality and trendy edge of Trader Joe’s‭. ‬But that may be to avoid direct comparisons with Aldi‭.‬

Compact footprints allow for many conveniently located stores‭. ‬And the limited assortment not only keeps costs down‭, ‬but speeds‭ ‬shopping trips‭.‬

The threat to conventional retailers is obvious‭. ‬With market shares over 10‭ ‬percent in the United Kingdom and Ireland‭, ‬the discounters have dealt a body blow to mainstream conventional supermarkets‭. ‬These deep discounters count for less than 1‭ ‬percent of the U.S‭. ‬market‭ ‬‮–‬‭ ‬but for how long‭? ‬And retailers have high fixed costs and are likely to be severely impacted if this new class‭ ‬of trade takes 10‭ ‬percent of sales away‭ ‬‮–‬‭ ‬which seems quite possible‭, ‬maybe even probable‭, ‬in time‭.‬

Like their earlier response to Wal-Mart supercenters, retailers are allowing deep discounters to grab market share.

What is quite odd is the way old patterns are repeated‭. ‬When Wal-Mart started its rollout of supercenters across the country‭, ‬supermarkets‭, ‬of course‭, ‬responded‭. ‬Indeed consultants made a living for a long time teaching supermarkets how to compete with Wal‭-‬Mart‭. ‬The plan‭? ‬Become the anti-Wal-Mart‭ ‬‮–‬‭ ‬emphasize high service‭, ‬fresh product‭, ‬and organics‭, ‬wherever Wal-Mart was weak‭.‬

In the end‭, ‬though‭, ‬these efforts‭, ‬even when successful‭, ‬did not much help retailers compete with Wal-Mart‭. ‬The efforts basically instructed retailers how to get out of Wal-Mart’s way and still survive‭.‬

In the United Kingdom‭, ‬efforts by the‭ ‬“Big 4”‭ ‬to compete with Aldi‭, ‬Lidl and similar concepts were‭, ‬at first‭, ‬stymied because the retailers were unwilling to take the margin‭ ‬hit necessary to be competitive‭. ‬This led to a lot of elaborate tiered private label schemes with torturous efforts made to offer prices comparable to the discounters‭, ‬but only on products made sufficiently unattractive that traditional shoppers would not‭ ‬opt for them‭. ‬This type of effort to segregate customers worked well in airlines where Saturday night stays could easily distinguish between business and leisure travelers‭. ‬But it has limited success in food‭, ‬especially when store managers have compensation schemes tied not to total profit but to margin percentages‭.‬

These discount stores have pros and cons like all concepts‭. ‬But they are right for many shoppers‭. ‬Some need to save money and like to not be singled out by the tier of product in their shopping carts‭. ‬Others have plenty of money but like the self-esteem boost that comes from buying smart‭.‬

What is interesting is virtually no mainstream retailers are rolling out divisions with these types of deep discount concepts‭. ‬They just seem prepared to watch while 10‭ ‬percent of their business goes away‭. ‬In this‭, ‬retailers are echoing the response to Wal‭-‬Mart’s rollout‭. ‬It was clear supercenters were a big part of the future and hardly anyone rolled out competitive concepts‭.‬

At least with supercenters‭, ‬competing with them involved selling more non-food products‭ ‬‮–‬‭ ‬and supermarkets didn’t have that expertise‭. ‬But the response to Aldi and Lidl requires only evaluating and adjusting assortment‭.‬

It is more a lack of imagination and an unwillingness to change one’s‭ ‬self-identification‭. ‬Retailers need to be concept-neutral‭ ‬‮–‬‭ ‬prepared to sell their food in small‭, ‬medium and large stores‭; ‬sell it online and sell it with heart‭. ‬Retailers need to not think of themselves as prisoners of their historical business‭.‬