The discount retailing market can be broadly divided into two categories: discount grocery retailers, which include companies such as Aldi Stores Ltd, Lidl Ltd and Netto Foodstores Ltd; and non-grocery discount retailers, which include ASDA Group Ltd, Matalan Ltd, The Peacock Group PLC, Primark Stores Ltd and Tesco PLC.
Both sectors of the industry follow a similar business model of ensuring all business costs are kept to the bare minimum, by buying large quantities of a small range of often own-label goods.
The grocery sector is dominated by foreign-owned companies which have seen considerable success in their own countries. The two market leaders Aldi Stores Ltd and Lidl Ltd are both German owned, and in their home country have an estimated 50% combined share of the total grocery market. In comparison, however, in the UK, the discount grocery retailers are estimated to make up only around 3.5% of the total food retail sales.
The discount grocery retailers launched in the UK in the 1990s and, while the market did not develop as quickly as it had done in other parts of Europe, it has seen dramatic increases over the past 5 years. The main factors behind the slower rate of adoption in the UK have been due to logistical problems in terms of restrictive planning controls making entry into the country for new companies very difficult, plus the fierce competition that these stores have received at the hands of the major supermarkets. The UK consumer has also been slow to warm to the discount grocery stores, unaccustomed to their small range of predominantly own-branded, dry, grocery goods. This has led many discount retailers to adapt their offering in the UK to suit their new audience, introducing wider product ranges, including fresh produce, healthy-eating, organic and fair-trade products.
The non-grocery discount retailers focus predominantly on clothing and footwear, and have also enjoyed a period of strong sales over the last 5 years. The companies have capitalised on the growth of sales within the clothing sector, especially women's clothing, plus the growth of the manufacturing industry in China. The value sector of the clothing industry is expanding rapidly, fuelled by the import of cheap clothes from China and the Far East, plus the advent of the `fast fashion' phenomena. Consumers' attitudes in respect to buying clothes have changed over recent years. Clothes have become a disposable commodity, with consumers updating their wardrobes on a much more frequent basis, and often wearing new items of clothing only once or twice.
The outlook for the discount retailing market in the UK is extremely promising over the next 5-year period, with sales increases estimated across both sectors. Both sets of retailers are undergoing dramatic expansion plans, with a large number of new stores and refurbishments planned within the coming years. Attitudes towards the discount retailing business are becoming more favourable, with an increasing proportion of consumers seeking low-cost, value alternatives to their purchases. Key Note believes that the market for discount retailers will expand at between three and four times the rate of inflation over the next 5 years (2007 to 2011).
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