Contestable Markets - The Rise of the Discount Grocers

A key feature of the UK retail grocery market in recent years has been the surge in sales, revenues and market shares of the discount retailers Aldi and Lidl.

At a time of falling real disposable incomes, millions of consumers have opted to change their buying behaviour in favour of grocery chains that offer the best value for money. Businesses such as Tesco have reported some of their worst sales profit figures for years.

Aldi and Lidl have grown rapidly as a result benefitting in turn from economies of scale as their operations have expanded in size.

• In the UK, Lidl is following a strategy of rapid organic growth by investing £220m over the next year on opening 20 new stores and creating 2,500 new jobs

• Aldi is already the world's leading limited assortment grocery, with total sales of €61.1bn in 2013, followed by Lidl at €59bn. Lidl's investment plans may lead to them over-taking Aldi in the not too distant future

• Together, the two German discounters have more than 20,000 stores across Europe, the US and Australia. Lidl is present in 26 European markets

• The majority of the hard discounters' products are own-label, rather than brands, which gives them more clout with suppliers.

• The range suppliers are asked to provide is narrower – perhaps four to six products compared with 30-40 at a large grocer – driving efficiencies and big volumes