The discount sector is crowded and competitive: Aldi, Lidl, Poundland and B&M are only a few of the retailers vying for space.
The market for discount goods has been growing over the last few years, but not every company has been a winner – only a few stores have managed to attract and keep customers.
It has been helped by “consumers looking for value in times of pressure”, as well as “a greater acceptance for off-price retailing amongst consumers”, according to an RBC analyst.
Around 90 per cent of UK consumers now shop with food discounters, according to research firm Mintel. Aldi leads the food discount industry with over 40 per cent market share.
British households spent 41 per cent more at budget outlets in January versus last year, according to a Nationwide spending report.
However, IGD retail futures senior partner Bryan Roberts said that the growth in discount stores has been slower during the cost-of-living crisis than in the credit crunch, when the chains’ growth exploded.
He continued: “It’s hard to pick apart the numbers, but a reasonable conclusion would be that the full-range grocers have become more adept at retaining shoppers than they were in 2008-09 and that the discounters have been seeing more muted like-for-like growth as a consequence.”
Winners and losers likely to emerge
“We expect an ongoing polarisation to lead to more winners and losers in the [discount] space going forwards,” an RBC analyst said.
Shares at Poundland-owner Pepco and B&M have dipped 23 per cent and 17 per cent in the year to date.
Despite quarterly revenue growth, like-for-like sales at B&M – which strips out the impact of shopping at newly opened stores – dipped by 3.5 per cent year-on-year last quarter.
Sales at Aldi and Lidl, however, are only going up. Together, they control 18 per cent of the market, up from 13.8 per cent five years ago.
Fierce competition from shops like Tesco, which runs an Aldi price match campaign, as well as “stronger loyalty programmes, further range development and product innovation” will lead to deepening divides between firms, the analyst said.
“Discount has seen growth both in good times and bad over the last two decades [but] we expect an ongoing wide gap in operating performance to emerge now,” the analyst added.