Tuesday 3 May 2016

Where are Aldi & Lidl headed, profitwise?

Thinking back to the relative simplicity of the 800 SKU model, based primarily on surrogate label with a handful of anchor brands, coupled with low staffing levels and small outlets, it was relatively easy to beat the multiples on price and yet make adequate profits.

At that time, it was cost-effective to approach the multiples’ suppliers of private label, and piggy-back on key lines, without picking up origination and compliance costs.

However, now that the discounters are extending their ranges via more creative product introductions, it follows that they will need more expertise in terms of more support staff in R&D, Tech, QC, apart from picking up the burden of the usual ‘9 out of 10’ failure rate…

Furthermore, as they continue to grow share, consumer media will highlight any product defects, thus triggering the ‘tell a friend’ mechanism – 'if I like it, I tell one friend, disappoint me and I tell 10 friends…'

All adding further to the compliance overhead.

Given the fact that the mults continue to keep pressure on shelf prices, it follows that the discounters’ additional costs will dilute bottom line performance. Perhaps this will become an opportunity for an entrepreneur to re-discover the original 'hard discount' formula, and launch a competitor to Aldi & Lidl?

Leaving us all to ponder on where the legal responsibility for damage to consumers can be laid: retailer or O/L manufacturer?

Welcome to the high-cost world of ‘normal’ retail…

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