As Brexit Nears, ‘Discounters’ Gain Ground in UK Supermarket Wars – New York Times

Spending at the two stores grew by double digits in the 12 weeks to mid-July, according to Kantar Worldpanel, a research group, outpacing not only the wider industry but every other major supermarket. Together, they now account for more than 12 percent of the country’s spending on groceries, up from just 4 percent a decade ago.

“When I was growing up, there used to be a bit of a stigma around shopping at discount stores at my school,” said Christina Carr, who works at a bank in Newcastle, in northern England. If you shopped at one, “you’d be classed as a poor family, and the kids would be horrible.”

When Ms. Carr, 28, moved out of her grandparents’ home, she found herself thinking much harder about her finances. She and her partner spent £60 on groceries every week, which looked increasingly unaffordable.

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The checkout at Lidl in Tooting. Lidl and Aldi now account for more than 12 percent of Britain’s grocery spending, up from just 4 percent a decade ago.

Credit
Tom Jamieson for The New York Times

In November, she relented, switching from Asda and Sainsbury’s to Aldi and Lidl. “The difference in price,” Ms. Carr said, “it’s really significant.”

Aldi and Lidl, both of which are privately held, made their first ventures into Britain in the 1990s, focusing on price. They targeted suburban areas and had spartan interiors. But they initially made few inroads in a market where supermarkets can carry class connotations. Upmarket grocery stores add as much as 10 percent to real estate values.

That started to change when the financial crisis hit. Britain’s economy went into recession and unemployment rose above 8 percent. Pay slumped in the years after the crisis, and though it has recovered somewhat, average wages are still lower in real terms than they were before the crisis.

A post-Brexit world has added to the popularity of “the discounters,” as the two retailers are collectively known. Inflation was 2.6 percent year-over-year in June, higher than the Bank of England’s target, and the central bank says it could rise to 3 percent in the fall. Official figures show disposable income has fallen. Rising grocery prices, in particular, mean the average household could spend £133 pounds more this year on its annual grocery bill compared with the previous 12 months, according to Kantar Worldpanel.

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“U.K. households are quite sensitive to pressure on disposable income,” said Edouard Aubin, an analyst at Morgan Stanley. “That is why they are switching to cheaper alternatives.”

Aldi and Lidl push their low-price messages relentlessly, both in advertising campaigns and in stores. The two retailers stock significantly fewer products — typically only a tenth as many as competitors — with a greater focus on items sold under their own lower-cost brands. Many goods are placed on shelves still in the crates or boxes in which they were delivered.

At the Lidl in Tooting, stacks of vegetable boxes run down the middle of the store, while bright orange signs overhead advertise price cuts. The store’s glass exterior is emblazoned with heart-shaped Union Jack flags and the words “Fresh British.” Visitors to the Aldi across the road, meanwhile, have to keep on the move to avoid staff members hurriedly restocking shelves or rushing to open cashier stalls.

They currently have nearly 1,400 outlets between them, and their sales have risen faster than those of rivals. Three in every five British households have shopped at either Aldi or Lidl, and the demographics of their customers are now similar to that of the broader population, according to Mr. Aubin at Morgan Stanley.

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At the Lidl in Tooting, fresh produce is stacked in the boxes it arrives in, saving time and labor.

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Tom Jamieson for The New York Times

“Although they’re small in the U.K., they’re massive businesses in their own right,” said James Walton, chief economist at IGD, which carries out research on the food and grocery industries. “They have great scale when considered globally, and they’re only buying a fairly limited range of products.”

As their customer base has expanded, the stores have expanded their offerings, adding seasonal product lines that include luxury goods like lobster or magnums of prosecco. Lidl, for example, is selling inflatable pool toys, avocado oil and Iberico ham.

That has helped retain a broader range of customers, like Mark Whitfield, who frequents both Aldi and Lidl in Sittingbourne, about 45 miles from London. “You’re buying unusual or luxury products, but not paying as much,” said Mr. Whitfield, 52.

Their expansion extends beyond Britain.

The American supermarket sector is significantly more fragmented than Britain’s, and the German retailers have set their sights on expanding there. Among lower-price grocery stores, Aldi already has 1,600 stores in the United States and is planning to expand to 2,500 within the next five years. Lidl is looking at opening 100 outlets as well, after opening its first American stores in June.

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Shoppers at the Lidl in Tooting. As their customer base has expanded, the discounters have expanded their offerings, adding seasonal product lines that include luxury goods like lobster or magnums of prosecco.

Credit
Tom Jamieson for The New York Times

The looming behemoth in the industry, however, remains Amazon, which bought Whole Foods in June. Though the online giant’s Amazon Fresh and Pantry services are available in Britain, the company’s market share here amounts to less than one percent, according to Kantar Worldpanel.

“Whether you look at the U.S., U.K.,” said Mikey Vu, a partner focused on retail on Bain & Company, a consultancy, “there’s a larger proportion of the population that’s concerned with where they’re spending their money.”

“The economy makes things a lot tougher for a lot of people,” he said of American consumers. “People are watching their pennies more. The hard discounter model is attractive to them, just like we saw in the U.K.”

The shift toward “the discounters” is not just a short-term issue for Britain’s supermarket sector. Younger shoppers are increasingly willing to try supermarket-brand items, which are no longer seen as lower-quality knockoffs, a trend that could be accentuated if the economy takes a turn for the worse again.

“You’re paying for the name” at other supermarkets, said Lucy Deacon, a 27-year-old who was shopping at the Aldi in Tooting. Ms. Deacon, who works in a local betting shop, said she would focus her shopping even further on discount supermarkets if Britain saw another downturn.

As she picked through spices for a curry she planned to cook that evening, Ms. Deacon said, “You get more for your money here.”

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As Brexit Nears, ‘Discounters’ Gain Ground in UK Supermarket Wars – New York Times