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The march of the discount retailers

The march of the discount retailers

Peter Wilks 21 Jun 2023
Amongst the doom and gloom in the retail sector, discount operators continue to thrive. Aldi, B&M, Home Bargains, Lidl, and Iceland’s “The Food Warehouse” brand have embarked on rapid store expansion programmes over the last ten years, exponentially increasing their market share of retail sales. This trend has continued during the recent cost of living crisis. Indeed, whilst there are signs of a slowdown in some parts of the country, Aldi has recently announced plans to open at least 60 stores in London.

From niche to mainstream

Once looked down upon, discounters are many people’s favourite stores. Aldi and Lidl first entered the UK market in the early 1990’s and were viewed as value retailers that did not compete directly with the mainstream foodstores. However, with lower prices, derived from limited product ranges and minimalist store designs, they gradually won over customers.
Households moving away from one bulk weekly shop helped them grow, realising that value doesn’t necessarily come without quality. In terms of total retail sales amongst the main food store operators, the market share of these five discounters has increased significantly since 2014 – from around 14% to circa 22%.

A new race for space

As shown below, the discount sector has thrived, with B&M being the star performer, more than doubling its estate over the period since 2014, and Aldi, Home Bargains and Lidl all increasing their total floorspace by around 50% or more. In contrast, with the exception of M&S and the Sainsbury’s Local format, the other mainstream food retailers have experienced only modest growth, or indeed a slight decline in retail space over this period.


Non-food has joined the party

Whilst much of the growth in the discount sector has been driven by Aldi and Lidl, other chains have emerged with a stronger non-food emphasis. The largest of these – B&M and Home Bargains – operate both in town centres and retail parks, selling a broad range of products. Whilst the non-food offer is the main draw, they also sell ambient food produce, and other items often purchased as part of a weekly (or more occasional) food shop, for example, pharmaceuticals and cleaning materials. Home Bargains currently have around 600 stores but plan to expand to 1,000 outlets, employing over 40,000 staff.

Expansion is continuing

The number of discount stores has nearly doubled overall since 2014. Whilst some areas have now reached saturation point, store expansion plans are likely to continue in under-represented locations. Although the outlook for convenience goods (i.e. food) spending growth in the short term is relatively weak, there will still be a need for new foodstore development in many areas. This could result from geographic deficiencies in provision and/or areas with significant housing growth planned. In such circumstances, there is a decent prospect of demand emerging from discount food retailers.
The potential for further expansion is highlighted in the latest information from Kantar – a leading data analyst – which indicates that the market shares of both Aldi and Lidl have continued to increase over the last year. That of Aldi has increased from 14.1%, when measured over the twelve weeks to 17 April 2022, to 10.1% over the twelve weeks to 16 April 2023, with that of Lidl increasing from 6.6% to 7.6% over the same period. According to Kantar, total sales have increased by around 25% (in absolute terms) for both retailers.   
 


Retail planning skills remain important

Local authorities need to direct any future demand to the most sustainable locations, in line with the sequential test, and ensure that there would be no significant adverse impacts, as required by the National Planning Policy Framework (NPPF). Any sequential and impact assessments need to be carefully considered by Councils, before it can be concluded that these tests are satisfied. Given our expertise in both preparing and reviewing such assessments, Lichfields are well placed to assist with this.
As well as filling gaps in provision, new discount retail stores can also deliver significant socio-economic benefits. By way of example, a typical Lidl store will generate up to 40 FTE (full time equivalent) jobs, with staff being drawn from their local community, with a new Home Bargains creating around 60 FTE jobs. These jobs will be in a variety of positions, including management, customer service, restocking, sales and cleaning, providing opportunities at a variety of skill levels.
Although store expansion programmes are not immune to the current economic headwinds, discount operators remain a shining light in an increasingly challenging retail sector. Having been embraced by the general public, they are certainly here to stay, and their continued expansion provides a valuable opportunity to help meet future needs.

Image credit: Gustavo Fring via Pexels

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The High Street isn’t dead, long live the high street #5 - the Post-COVID “new norm”?
The Government’s latest retail sales figures show encouraging signs of recovery since lockdown, but what do the figures tell us about the future and the most likely “new norm”?
In the past consumer expenditure has grown consistently in real terms (over and above inflation) over the long term. This growth has fuelled the demand for new retail floorspace. Average retail expenditure per person in the UK grew by about 16% between 2009 to 2018 (Experian), despite the impact of the last recession i.e. 1.8% decline between 2009 and 2012. However, beyond this headline growth, home shopping accounts for much of this growth rather than in-store shopping. Expenditure growth per person attracted to traditional bricks and mortar retail was only 5% between 2009 to 2018, as a result demand for new retail floorspace has been sluggish during the last decade.
The short-term impact of the COVID-19 crisis is becoming clearer but the longer term structural implications are harder to predict. In the short term, operators have faced cash flow issues and increased costs arising from a slump in consumer demand and disruption to supply chains. Non-essential products, hospitality and leisure services have been hardest hit. Some retailers able to fulfil on-line orders/home delivery are benefiting at least in the short term from enforced changes in habits. There is likely to be a longer term structural shift to on-line shopping, reducing the demand for physical space within town centres. Following the COVID-19 furlough arrangements there is likely to be a spike in vacancies and some centres may struggle to fully recover. Some centres will need to explore opportunities beyond retail.
Office of National Statistic (ONS) monthly sales volume information for Great Britain indicates total retail sales volumes had recovered to previous levels of growth but the proportion of retail sales spent on-line is likely to represent a higher proportion of total sales, which will have an impact of traditional bricks and mortar retailing.
Retail sales volume fell by 22% in April 2020 during the start of lockdown. However, post lockdown sales during July and August recovered to pre-lockdown levels, with the August figure now 4% higher than the February figure. During lockdown on-line retail sales peaked in June at over 62% higher than pre-lockdown levels. On-line sales remain high at about 50% above normal levels.
Excluding on-line sales, the latest sales figures suggest bricks and mortar retail trade is still 6% down on pre-lockdown levels. This 6% reduction may not fully reflect the implications of the expected economic downturn, particularly after the furlough period ends in October. A challenging period for town centres and some operators over the next 3 to 5 years now seems likely, but these effects will not be evenly distributed.
The comparison goods (non-food) sector has been particularly affected with a 50% drop in sales from February to April, whilst the food sector experienced 10% growth in sales during March, in part due to panic buying at the start of the crisis. Food sales volumes have been consistently higher since February, benefiting from reduced trade in restaurants, cafés, pubs and bars.
The year to date sales figures (January to August) are down by -4.8%. Food stores achieved +4.4% growth compared with -18.2% reduction for non-food retail, with clothing and footwear the hardest hit at -30.1%. The continuation of these trends suggest higher order fashion shopping destinations could suffer most from the surge in on-line shopping. Lower order centres focusing on day-to-day essential items and services have, and should continue to recover more quickly.  
This trend is evident from the Centres for the Cities’ high street recovery tracker which monitors footfall and spend across cities and large towns. Large city centres have been slow to recover with many centres still 30% or more down on footfall and spend during the last week of August compared with pre-lockdown levels. The worst affected city centres in terms of footfall include: London (-69%), Manchester (-51%), Birmingham (-48%), Leeds (-43%) and Nottingham (-41%). These large centres have been the hardest hit due to increased home working and loss of international tourism. As a consequence of increased working from home, these headline figures for larger cities mask increased footfall within many local, district and town centres: which have seen a resurgence in footfall as people work and spend locally. Many satellite towns and seaside resorts have benefitted from home working, staycations and more customers shopping locally. The best performing towns include: Blackpool (+41%), Bournemouth (+33%), Birkenhead (+24%), Southend (+16%) and Chatham (+15%). This is likely due to the differing roles that high streets have in smaller towns. Where footfall has previously been driven by destination retail (for example the Bull ring in Birmingham or Oxford Street in London) or by office generated footfall, for example Leeds or the City of London, high streets have lost their customers during lockdown and the shift to working from home. In smaller towns, and local centres however there is evidence of customers returning, following the eat out to help out scheme and the benefits of being able to shop locally.

Source: Centres for Cities footfall data for 13 February – 1 September 2020

Some rebalancing from large to smaller centres will be welcomed in many areas, following the extended period of polarisation towards the most successful regional shopping destinations. This rebalancing could be sustained if, for example, increased home working continues. Town centres ability to retain market share and compete with on-line sales will be critical for the vitality and viability of town centres in the post-COVIDnorm. Town centres will need a coherent recovery strategy to have the best prospects of flourishing. Continued repurposing of retail space is inevitable due to the likely spike in vacancy rates and recent changes to the Use Class Order allowing more flexibility for changes of use.
Other blogs in this series:

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