Discounters aren’t sexy, but they offer a wealth of hidden treasures, writes Louise Banham
BW: So, what’s going on in the discount channel?
James Russell, managing director, Rowan
JR: The discount channel is growing massively. It’s pretty well known that the marketplace has really boomed, particularly since the global financial crisis. It’s become a lot more acceptable to shop in discounters.
In particular, we’re seeing an awful lot of people we call ‘silver savvies’ – older people who tell their friends what great value discounters offer. They are a strong customer set.
We’re also seeing younger and more affluent groups coming through, such as people who used discounters as students and haven’t changed their shopping behaviour.
How is discount retailing perceived by suppliers?
Discount retail used to be a backwater of national accounts that no one wanted to look after. With the bulk of manufacturers, it just grew and grew. They didn’t really know why it was growing, but they liked the fact that in trying economic times, it showed top-line growth. It’s a sector that traditionally doesn’t have a lot of own-label, so it gave brands an environment in which to flourish again.
How’s business going for your depot?
We’re really strong – last year, our turnover was £57m. For a market that’s down (wholesale in general and discounters), you don’t run into many people who are having a bad time. As a business, we’ve had seven or eight years of constant growth.
We’ve benefited from the euro strengthening against the pound, so our European business is up, but we also have a really strong financial footing and a great relationship with our bankers. This has meant that we’ve been able to stay trading with businesses in southern Europe, when other businesses have been unable to provide or get the credit.
How is the discount market broken down?
You can divide it into three tiers. Tier A is hard discounters such as Aldi and Lidl. They are doing really well and they’re evolving their offer.
Tier B is fascia discounters such as Home Bargains, B&M, The Range and Poundland. These are stores that have taken over furniture shops, they’re on retail estates and have grown well in the past five or six years.
Tier C is not associated with a chain. There’s about 7,000 such stores in the UK. We’ve seen an explosion in tier C retail, which is where our core expertise is. An increasing number of stores and some of that customer base is coming from the old symbols and churn from fascia programmes such as Lifestyle Express.
What are the advantages of working in the discount channel?
The great thing about our business is we merge the regular supply of discount packs in the marketplace with clearance products and obsolete stocks, such as overstocks, old packaging and short code. What that offers the discount retailer is the occasional ‘treasure hunt’ piece.
It’s one of the things that make the discount sector really appealing to the consumer – they can’t just walk past a discounter because they don’t want to miss out on something that won’t be there next time. Things come into the chain and move out quite quickly.
Does anyone really understand the discount market?
Nobody really understands. Look at Nielsen: they can’t really tell you how big the market is. Kantar may have a better view, but it’s only going to be to a certain level. The one thing that holds true across the entire marketplace is that nobody has any idea about what’s going on within this market, mainly because it’s grown so rapidly, there’s not been research into it.
FOOD DISCOUNTS: 26% of shoppers plan to use food discounters more in the coming year
MORE TO COME: 22% intend to use high street discounters more.
DISCOUNT GROWTH: In total, the discount channel is expected to grow 64.7% to be worth £12.4bn by 2017.
RICH POTENTIAL: 48% of ABC1s use a discounter every month, compared with 98% in Germany who use them every week.
It’s also not a sexy part of the industry – if you did a straw poll among FMCG people about where they want to work, you’d find this isn’t an area that’s high on people’s agendas. It’s one of those unknowns.
However, we recently released a report into the discount channel with IGD, which gave more insight into the market. It found that discounters are currently used by just under half of shoppers and the sector is forecast to be worth £12.4bn in 2017.
Is it important for big suppliers?
We’ve done work with P&G and their internal research tells them that our channel is a strategically important part of their business – 15% of consumers who buy a product in a discounter go on to buy that same product again, in a regular store, at a regular price. So they see it as a great place for trial.
We recently sat down with a really major brand to find out how to use their resource to add value to their business rather than additional costs. We’ve taken responsibility for their entire clearance business so that they can focus on delivering a great consumer experience in the other channels that stock their brand.
How does the European market compare to the UK?
In the UK, 48% of lower-middle class to upper-middle class people (ABC1s) use a discounter every month. In Germany, it’s 98% on a weekly basis.
What that tells us is the core shopping experience for a lot of these people is still going to be a main store. Do I see 98% of ABC1 Brits shopping in these outlets on a weekly basis? Probably not in this generation, but let’s remember that markets like Germany didn’t get to where they are now overnight.
Australia is another great example. It’s dominated by a couple of major multiples. Aldi came into the market about 12 years ago and has started to make a really big change. In the overall scheme of things, 12 years is a short time, but it hasn’t been an overnight success. I think it will continue to evolve and there’s loads of opportunity within this marketplace.