Store wars: the big three v the little two

Ireland's supermarkets have changed enormously in recent years – and they're still changing. In 2012 Tesco had grown its market share to 28.6 per cent and appeared unassailable. Musgraves, which controls SuperValu and what was Superquinn, had just over 25 per cent, and Dunnes Stores was third, with 21.6 per cent. Aldi had seen its share of the grocery pie increase by 30 per cent year on year. That took it to 6 per cent of the total market. Lidl was on 6.6 per cent.

The picture painted by the most recent quarterly share figures, up to the middle of October, is quite different. Kantar Worldpanel reports that the supermarket space is in a robust condition, with year-on-year growth in sales of 2.1 per cent. Describing it as the most positive performance the market has seen in more than five years, Kantar's director in Ireland, David Berry, says the fact that sales were ahead of inflation suggests that "consumers are becoming less restrictive in what they buy and adding extra items to their baskets".

This ties into the narrative that recovery has taken hold and that consumer sentiment is improving. But this rising tide is not lifting all boats. Tesco is still number one, but its lead has been cut to virtually nothing. Its market share stands at 24.5 per cent, just 0.1 per cent ahead of SuperValu, which has also lost ground since 2012.

Dunnes Stores has posted the strongest performance of the big three, growing sales by 4.7 per cent and taking its market share to 23.2 per cent – up nearly 2 per cent in three years. It was the 11th month in a row for which it reported growth, something that is largely attributed to promotions: products on offer account for 39 per cent of spending at Dunnes.

Aldi and Lidl have both gained ground on the big three. Year on year Lidl has increased in sales by 9.8 per cent; Aldi grew its share by 4.5 per cent. For both retailers the strongest source of growth has been larger baskets: over the past 12 weeks Lidl shoppers have put an average of two more items into their trolleys compared with last year; Aldi's shoppers added one item.

When it comes to attracting new customers Aldi is the fastest-growing retailer. It has attracted 50,000 more households this year compared with last year, and 1.3 million Irish households have visited an Aldi store since the beginning of the year.

“What we have learned is that Irish shoppers are more savvy than they used to be,” Berry says. “They have been willing to change their behaviour and to change where they do the bulk of their shopping.”

He describes the move towards the discounters as a big trend – but not the only one. “We have also seen a response from the major multiples – Tesco, Dunnes Stores and SuperValu – and for the most part that response has been very strong and very successful, particularly when it has come to the development of their own-brand offerings. The breadth and quality of it have increased dramatically.”

Shopping habits

He points out that brand names still dominate some categories – Coca-Cola and Kellogg’s Corn Flakes seem untouchable, for example – but we are approaching a tipping point in Irish shopping habits.

Lidl came to Ireland in 1998. Aldi arrived a year later. It took a while for Irish shoppers to understand what the Germans were about, and in the early days consumers were reluctant to swap branded products for unfamiliar labels.

Then the economic bubble burst. With less disposable income, shoppers became more value conscious – and many realised that they could save 30 per cent on a weekly shop, or more than €3,000 a year for the average household, simply by swapping established brands for own labels.

Aldi and Lidl also started striking better deals with their suppliers, and the quality of their stock improved. SuperValu’s shift towards own-brand goods also gathered pace; it now had more than 1,000 product lines carrying its name.

In 2008 just 8 per cent of our shopping basket was made up of own-brand products. Now 51 per cent of the average Irish shopping basket is now made up of branded goods; the remainder is own-brand and fresh produce. “What that tells us is that people are a lot more aware of what they are buying and that the trust they put in the retailers is stronger.”

Berry says retailers have had no choice but to offer better alternatives. “Because of the competitive nature of the market they have to be good at what they are doing, to get people through their doors. Otherwise people will just take their business elsewhere.”

Gerard O’Neill of the Amáaárach Research consultancy says, “I would say the Irish supermarket shopper is changing rather than has changed: it is not over yet.” Amárach’s research on consumers’ attitudes has found that we rate credit unions, the National Concert Hall and Dublin Zoo as offering the best customer experience. But Aldi came fourth in its poll of more than 2,700 people for Customer Experience Insights (CEXi).

“That really surprised me,” O’Neill says. “We lived through the recession and watched as the discounters changed the retail rules and relentlessly pushed down prices, but now they are changing the rules again. They are aiming for better prices, better experiences, better prices and better service.”

He says that shoppers will never revert to the bad old ways of the boom years. “Consumers are now saying, ‘I know I can get good value wherever I shop, so give me another reason to shop in your store.’ People expect great value, but they want more.”

Retailers have responded in different ways. “Dunnes Stores have their Irish fashion lines, which give a nice halo to their grocery offerings. That is something other retailers don’t have,” O’Neill says. “And you have Lidl and Aldi focusing on their Irish links. They are all trying to have a different conversation with their shoppers. And it is working. I see it in focus groups where consumers are actually looking out for newspaper ads from supermarkets, and not to see what the bargains are.”

Store openings

O’Neill says that there will be more store openings as retailers follow a tried and tested route to building market share – Aldi, for example, will add seven stores next year to its current 122 stores – but he predicts that “retailers will have to go back to basics and deliver a great customer experience. Aldi seems to be leading the way.”

Aldi says, “Our prices will get people in the door, but they’ll only stay if they’re delighted with the quality and the overall shopping experience they find. We know we deliver on all three. As a business we are never complacent and will continue to develop.”

Berry is not convinced that Aldi and Lidl will have it their own way forever. “The discounters have done phenomenally well, but as their presence gets stronger, and as they get a bigger share, it will become harder to maintain that level of growth.”

Mind you, they still share about 17 per cent of the market. In some other parts of Europe their combined share has climbed above 40 per cent, suggesting that mainstream retailers need to up their game or risk losing more ground – and possibly the whole race.