Retailing in the Week Ahead, Week 15, 2019

Many big A-Brand companies are finding the discounter channel to be a fast-growth and more open opportunity than in the past. This is particularly true when brands consider the European phenomenon that is Action.

Action is a 700+ store-chain based in the Netherlands, with over 1,400 stores globally, that is growing at double digits and entering new countries at a rate not generally seen in the discount channel.

Likewise, A-Brands are finding that in several big and important markets, not only are discounters the dominant channel for A-Brand retailing, but they are also the dominant future growth channel, particularly when removing eCommerce from the picture.

Action has exploded across Europe, while would-be imitators have struggled to keep up. (Source: Retailer websites)

Still, A-Brands working with retailers like Action in Europe, or even those working with Turkey (BIM, A101, SOK), Russia (Pyatorechka, Magnit, Fix Price, Krasnoe i Beloe), Spain (Mercadona, Lidl, Dia, Aldi Nord), Iceland (Bonus), Colombia (D1, Justo y Bueno, Ara, and Dollarcity) are finding that past successes do not guarantee better partnerships and investments. Likewise, these retailers often “bite the hand that fed them” by delisting or deprioritising brands that at one point generated the traffic or basket that the discounters needed to go from good to better or better to best.

These companies often have strange rules of partnership like “fax me your offer” or “no field sales allowed”. This creates internal confusion, extensive internal debate, and slows big brands down.

The result, unsurprisingly, is that many A-Brands begin to search for the next big bet in the discounter channel. Why work with someone that only wants to communicate by fax when you have a direct competitor that has a different approach? This is wise thinking, for two reasons:

  1. Up-start (or startup) discounters often force dominant discounters to react more emotionally when compared to the reaction that they have when it is a full-price or full-assortment competitor. When Action begins stealing share from Lidl, Lidl behaves very differently than when Auchan steals share. This normally opens up an opportunity for the A-Brand at both retailers.
  2. The discount channel is either an in & out business or a private label business, making it very difficult to grow the channel predictably and reliably, especially when in Year One they are brand-friendly and in Year Two private label-friendly. The result is that having a “Plan C” or “Plan D” when offering a discounter A-Brand cooperation generates better betting odds than just having a “Plan A” and a “Plan B” alone.

The challenge, of course, is the time-honoured question: “Is it better to dance with the devil you know or the devil you don’t?”

When we look at the Netherlands, and the phenomenon of Action, Europe’s fastest-growing discounter, we can clearly see the dilemma that emerges. This story unfolds in three parts.

  • Part 1. Action surprises everyone by opening multiple stores per week, blowing away all forecasts, and listing full portfolios of products, even inviting leading A-Brands into strategic conversations and joint business planning sessions. They rapidly enter new markets and ask for pan-European agreements.
  • Part 2. Copycat retailers emerge –  such as, in the Netherlands, Blokker’s Big Bazar or Op-Op; at the same time key players like Aldi open their doors to more and better levels of cooperation.
  • Part 3. Some of the retailers begin to lose pace – they either have run out of credit due to smaller pockets or smaller success when compared to a big player like Action (as is the case with Big Bazar and Op-Op in the Netherlands) or they need to consolidate and modernise poorly performing locations (as is the case with Aldi Nord Netherlands).

The dilemma, of course, as you review all three parts, is that a good strategy (diversification) ends with a bad result (no A-Brand has truly cracked the code when it comes to getting the right SKUs into the right retailers in a predictable and reliable manner).

This little lesson in good strategies with less-than-ideal results is a challenge that can be avoided but only with better alignment/support for the discounter channel nationally, regionally, and globally.

It is important to mention that this dilemma is not unique to discounters. We have seen the same story repeated, over time, with all high-growth channels of retail. First, it might have been supermarkets, then hypermarkets, or perhaps cash & carries, or even chain drugstores.

A big question A-Brands should ask is whether we are facing a new age where we have as many ‘discounter growth stories’ as we have ‘discounter demise stories’? For that matter, are we also facing a time of reckoning when it comes to proximity supermarkets, symbol groups, eCommerce marketplaces and - dare we mention it – eCommerce pureplays?

Only time will tell, but one thing is certain – the Discounter Dilemma – as illustrated in the Netherlands with Action’s success and the demise of alternative discounters such as Big Bazar and Op=Op – is not an isolated case in one country and one channel. We at Kantar offer a word to the wise – just as you are ramping up investments in new channels, many retailers in these channels are facing structural challenges that could limit options and slow expectations.

As always, we at Kantar are available to do a quick health check of potential and key customers in any channel in any market, with the aim of helping A-Brands invest wisely.

Finally, there are more hits than misses in these channels and overall volumes are often still very low. We encourage you to continue to make bets in these channels. but just back it up with better planning, coordination, and facts. As they say in real estate, it is still a buyer’s market.

If you did not have a chance yet, please also have a look at some of our big featured items from Week 14:

Good luck in the week ahead.

Regards,

Ray Gaul – Ray.Gaul@KantarConsulting.com and @KantarConsulting or @RayGaul on Twitter plus LinkedIn.

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