Waitrose don't fear Aldi, but the big four should

10 April 2015

Nathan Subramanian, Principal Teaching Fellow, has suggested while Aldi overtaking Waitrose has made the headlines it is the traditional big four supermarkets that need to be wary of the German discounter’s growth.

Aldi increased sales by 16.8 per cent in the 12 weeks to March 29 according to research firm Kantar Worldpanel. It now means Aldi has a 5.3 per cent share of the UK grocery market to overtake Waitrose (5.1 per cent) to become the sixth largest supermarket in the UK.

But Dr Subramanian believes Waitrose, whose sales rose 2.9 per cent, have less to worry about than the big four – Tesco, Asda, Morrisons and Sainsbury’s – who will need to reconsider their business strategy if they are to address Aldi’s continued growth in market share.

He said: “The latest figures from Kantar once again emphasise the unstoppable growth of the discount retail chains Aldi and Lidl.

“The headline figures, though, can be slightly misleading. While Aldi has indeed been registering continuous growth, this growth is not really coming at the expense of Waitrose, but that of the other retailers, the traditional big four and the Co-operative.”

Dr Subramanian points out Waitrose is in fact one of only three stores that have continued to grow in terms of sales as well as market share, the other two being Aldi and Lidl.

He added: “Clearly, consumers are preferring the stark choices of either high quality at higher prices, offered by Waitrose, or reasonable quality at low prices, offered by stores such Aldi and Lidl, while the stores in between are getting squeezed.”

Aldi have a different business model, focussed on a narrower range of products and brands, a substantial proportion of which are the retailer's own brands offering good quality at lower prices and also a mix of bakery, vegetables and other fresh produce to draw the customers in. All of this goes hand in hand with a store merchandising and layout that supports efficiency and their value offering. And, according to Dr Subramanian, simply price-matching Aldi is not a long-term fix for the big four.

“It appears that Aldi has now reached a threshold point, from which their growth is only going to accelerate further, and the traditional big four stores are not going to find it easy facing this challenge,” said Dr Subramanian.

“The big four are now in effect caught in a bind, because if they try and replicate the business model of stores such as Aldi and Lidl, they are at risk of alienating the bulk of their existing customers, particularly those who are looking for the wider range of products and brands they have traditionally been offered.

“On the other hand though, continuing their existing way of doing business (albeit with some temporary price cuts) is also not an option because that will only mean continued haemorrhaging and loss of market share.

“This is going to be an interesting space to watch!”

Nathan Subramanian teaches Advanced Marketing Management  on the MSc Marketing & Strategy, Marketing on the MSc Management and Global Branding and Strategic Marketing on the Executive MBA.

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