What does the future have in store for discount supermarkets?

According to Kantar Worldpannel, discount retailers Aldi and Lidl now collectively hold a 10% stake in the UK grocery market. These two companies have experienced a meteoric rise, redefining budget outlets as the intelligent choice for savvy consumers in the pursuit of high-quality, low-price goods.

In order for these firms to achieve sustained growth and longevity, they must successfully navigate the transition from underdog to market force, staying true to the brand values that drove their popularity, while also learning lessons from the ‘big four’ in data capture and personalised marketing techniques.

One of the biggest challenges facing retailers during the upsizing process is the implementation of rapid national growth. At present, Aldi and Lidl have lodged planning applications for 171 new stores, in what can only be described as an aggressive expansion strategy. Ensuring that all marketing materials, store layout and point of sale collateral are consistent is essential, and strict quality controls must be in place to preserve customer experience across all locations. For medium-sized retailers, this process can put huge pressure on logistics networks and stretch the pool of available, talented staff. Stores must be refreshed and branded in preparation for busy periods such as Christmas, Halloween, Mother’s Day and Valentine’s Day, but on a much wider scale, requiring greater resource and agility.

Moving forwards, budget retailers should look to drive change in their marketing strategy in order to move into the mainstream and crucially, maintain customer loyalty. While the ability to pile it high and sell it cheap is an excellent carrot in the attraction of new shoppers, no store can maintain the lowest price point forever. Therefore, Lidl and Aldi should continue to pursue the qualities that prompted their popularity, the sale of good value, award winning produce, but also move to gain further insight into individual customers’ buying habits and product preferences through data capture.

Competing with the Tesco Clubcard, or Sainsbury’s Nectar Card, both of which capture and analyse customer data in exchange for a series of rewards or vouchers, is unrealistic for smaller budget retailers. The set up costs to create, promote and implement such a programme are high, and would likely cause a price increase at the tills. However, there are a number of strategies that Aldi and Lidl can use to capitalise on their burgeoning customer base and provide insight. For example, local in store promotions can be offered during periods of high-footfall to capture data, and understand customer demographics. Consumers may be provided with product vouchers, or money off their shop in return for completing a survey or sharing an email address. This information can then provide the basis for regional offers or an adapted product offering which is communicated back to the consumer online or in-store, promoting loyalty.

Data capture and an integrated marketing approach are also essential if budget retailers are to successfully diversify their offerings with the move to e-commerce. Aldi has announced plans to penetrate the online marketplace; first selling wine in Q1 of 2016, then non-grocery special buy items in Q2. This must be supported by some form of in-store data collection, for example driving customers to sign up to the firm’s online mailing list in exchange for an in-store discount. Migration of customers from in-store to online is key if sales volumes are to reach desired levels.

Budget brands have proven that retail market success can be achieved without a huge focus on personalised marketing, but an improved customer experience and desirable price point that promotes the brand via word of mouth. However, for smaller retailers looking to achieve sustained growth and become a true market force, a co-ordinated point of sale and marketing strategy that encourages data capture should be developed to promote long-term customer loyalty. This relies on businesses laying the foundations for an efficient and comprehensive logistics network, capable of supporting growth nationwide.

Andy Eaton is head of technology at print, marketing and branding specialists Vital Communications