One of the driving forces behind the global success of the traditional Hard Discounter Model has been that the model itself is relatively easy to transfer to new markets due to its simplicity vs other formats.

Colombia offers a great recent example of this, with ex-Aldi Executives taking the Aldi blueprint to co-launch hard discounter models such as D1 and Justo y Bueno. The channel itself has experienced phenomenal growth, reaching 12% market share in 2017, having only been 3% in 2015.

As a result, more and more retailers are especially interested in replicating the model. In the UK, Tesco are inching closer to opening its own new format, rumoured to be a Discounter model that takes on Aldi and Lidl directly. If Tesco is to follow through with this, the basic value proposition will focus on a high quality, low price offer that is convenient to get to and shop. On the face of it, this is “easy” to replicate and Tesco will certainly be borrowing from the Aldi Playbook. However, the magic of the model and the foundations in which it Aldi and Lidl have been so successful, is far harder to replicate, especially in markets where shoppers are already familiar with the model. Here we summarise the 5 Things that make Aldi and Lidl so unique.

Wages and Culture

Discounter store employees are amongst the hardest working and efficient workers in the industry because they pay the highest wages to attract the best young staff. They incentivise and reward employees around cost savings by reducing shrinkage and focusing on the productivity of individuals. Additionally, the global nature of their operations means employees feel part of something bigger with more opportunities to progress.

The Total Quality Model

One of the ways Discounters ensure the highest quality of each product is they utilise dual supply chain, where alternative suppliers for each category compete for better cost, improved packaging, and quality. Additionally, they are extremely stringent in testing every product regularly to ensure compliance on quality is maintained.  The best example of this is Aldi’s Testing Kitchen - the simple but strictly organized taste test can see buyers try individual item 30 times before it goes on sale.

Patience

As privately-owned companies, there is no added shareholder pressure on Lidl or Aldi. Indeed, the discounters have proven to be very adaptable, changing traditional prototypes and the operating model, without having to provide short term financial returns. Whilst new formats like the one Tesco is testing will be operationally separate from Tesco, the performance of it will be closely watched by the shareholders and ultimately the pressure on the format to drive sales and profits will be more than that of its German counterparts.

Speed of Innovation

The discounter model continues to evolve and innovate. The speed in which Aldi and Lidl are doing this can only be achieved because they have history and knowhow of running the model over a long period of time. This means they know where and how complexity can be added to the model without adding too much cost.  We have seen this in the UK, where Lidl moved one of its Non-food weekly promotional days from Monday to Sunday to match Aldi. Immediately after this shift, Lidl experienced problems as there was a huge uplift in shopper numbers on a Sunday, a day in which trading hours are limited, meaning congestion and long queues. Nine days after the promotional switch, many of its small urban stores were fitted with up to 10 self- checkouts, replacing 1-2 traditional manned tills. The switch quickly helped solve these congestion issues.

Marketing Strategy

Tesco may be in a position for early success as model will offer something new vs two brands that have lost a bit of novelty. However, Aldi and Lidl have and will continue to outspend their grocery peers in advertising and marketing to reinvent the Brands. The overall strategy of Aldi and Lidl is to convince shoppers to switch from their traditional formats. As market Leader, Tesco won’t be looking to replicate this strategy and will more likely be trying to convince shoppers to move from Aldi and Lidl to its own format. Without significant investment in marketing, this is a lot harder to do as Sainsbury’s joint venture with Netto proved.

 

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