New problems posed for big brands by discount supermarkets

Aldi and Lidl bring with them all kinds of new competition in the supermarket wars. PA/PA Wire

The decline of big supermarkets in the face of brutal competition from discount retailers like Aldi and Lidl has been widely discussed. But, as shoppers move away from conventional ways of shopping, little mention has been made of the impact these changes may have on the big brand names stocked by these giants and not by the new kids on the block. Indeed, one of the ways that Aldi and Lidl maintain their low prices is by stocking discount, non-brand everyday items.

British consumers have traditionally favoured big-name brands such as Cadbury’s and Kellogg’s – even during times of recession. So what will happen to these brands if consumers begin to get a taste for the lesser-known names that are marketed in the discount retailers?

Strong brands depend not only on quality but also on the image they portray. But if this starts to matter less to the consumer these brands may start to suffer along with the stores that stock them.

Changing shopping habits

When the recession first hit the UK, there were many predictions as to how British consumers would react in their day-to-day shopping habits. As early as 2009, insight group Shoppercentric forecast that 48% of people would be making small changes to their shopping – including switching to a supermarket’s own-label products – and 24% would make major changes – including moving between stores for best prices. These predictions had some important pointers for brands: that own-label might become a more attractive choice for some and that people would shop around for the best prices.

As regards switching to own-label, Marketing Week noted that families with low incomes often prefer premium brands because it guarantees a known level of quality and taste. A cheaper product could mean them effectively wasting their money. And when money is short the cost of buying food your family won’t enjoy is much higher, so hard-up families can be more risk-averse in their food shopping.

Until now consumers appear to have been shopping around the stores for the best deals on branded goods. The rise of Aldi and Lidl, however, may herald a real problem for big-name brands if those consumers who moved to buying Tesco own-label brands, then move on to cheaper but unfamiliar brands in Aldi and Lidl and are pleasantly surprised by their quality.

Brands are often considered to be the most valuable asset a company has. A well-known name can generate more money because consumers have more faith in it than a similar small or own-label brand. To develop this strength, manufacturer of brands such as Coca Cola, Cadbury’s and Kellogg’s invest millions in product development and advertising. But maybe the big brands are losing some of their glitz – or at the very least their apparent superiority over the unfamiliar brands stocked by Lidl and Aldi?

The trouble with shopping around

Sainsbury’s chief executive, Mike Coupe, has recognised that customers are both savvier and are shopping around more today. But this does not necessarily mean that big brands will win out in the bargain hunt.

The trouble with shopping around is that it is time consuming and requires a lot of detective work. The same brand can vary in price in the big four supermarkets from one week to the next, with various deals and offers; independent stores often price brands higher too.

An interesting exercise is to compare the price of chocolate brands in a petrol station shop against their price in a supermarket.

Spot the difference. Ninian Reid, CC BY

The key here is whether or not these unknown brands are accepted as just part of the bigger brand offering which is the value supplied by the new discount supermarkets. Aldi have already capitalised on this in its advertising by showing its brands compared to market leaders in products as diverse as gin and ketchup, often with advertising copy showing little more than the two, very different, prices.

And now that Aldi and Lidl have been around a while and are becoming trusted brands in their own right, this lends weight to the products they promote. This is the real threat to the big-name brands they don’t stock.

The more accepted Aldi and Lidl’s brand portfolio becomes, the less willing we will be to pay a premium for well-known manufacturer brands in Tesco. Of course, the big-name brands have a well-established, global market so are not under threat as such. But in the UK at least consumers may be less enamoured by them as they search for value – and that may have some interesting consequences.

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