Aldi is willing to fight for space in the lucrative convenience market

Following the launch of discounter Aldi’s Local format last week in South London, Thomas Brereton, Retail Analyst for GlobalData, a leading data and analytics company, offers his view:

“Although the ability for the discounters to gain new loyal UK shoppers is beginning to slow as they struggle to find new locations that do not cannibalise sales, this move shows – for Aldi at least – a desire to expand into the faster growing channel of the convenience market, which grew 4.1% to £33.6bn during 2018 compared to 3.2% for the overall food and grocery market. Convenience growth remains largely driven by an increase in the number of consumers doing high frequency, low value food shops, particularly prevalent amid the 25-34 age group.

“For the Big Four, this represents a very real threat; over the last decade, the discounters have gained 8.0ppts market share in food and grocery significantly at the expense of these major supermarkets – which lost 7.7ppts market share over the same period. However up until now, this depletion has been almost entirely within the confines of larger supermarket spaces, and Tesco and Sainsbury’s have been able to decrease average store size year on year by repositioning their store networks to have a heavier focus on smaller convenience stores.

“While this is currently only a trial for Aldi, we believe it has a strong chance of success, engaging consumers on the key drivers of both price and convenience. However, Aldi’s key concern will be profitability at these stores, which will inevitably drive Aldi’s decision to unveil more of these stores or not; taking the discounter’s currently well-oiled model which involves precise store sizes, shelf locations and space dedication to certain ranges, and attempting to imitate it on a smaller scale – with Local outlets planned to be about a third of the size of the regular c.19,000 sq. ft. Aldi stores – will surely throw up unexpected problems.”

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