The hunters are becoming the hunted. Discount food retailers have been snapping at the heels of the leading supermarket chains for years, and now take nearly half total sales in countries like Germany. But the rules of the game seem to be changing.
After several years of brisk expansion across Europe, underlying sales at discount formats are levelling off and, in some cases, actually falling. In France, hard-discount stores have increased market penetration by only 0.4 per cent so far this year, according to Standard & Poor’s, despite having opened 300 new stores. Like-for-like sales at Leader-Price, Casino’s soft-discount subsidiary, fell 2.6 per cent in the first half.
This partly reflects weak demand across Europe, but also shows that the days of the discounters’ easy gains are over. Chains such as Germany’s Aldi are responding by improving the quality of their offering, for example by selling more national brands. The supermarkets, meanwhile, are investing heavily in price cuts. French market leader Carrefour has reduced prices aggressively in order to regain lost market share.
The problem with non-stop price competition is its impact on operating margins, in decline across most of the sector. Cutting capital expenditure to protect margins is not an option for retailers desperate to offset declining like-for-like sales by opening new stores. These, in turn, hurt underlying sales even more as new shops cannibalise sales from their neighbours. Discounters and market leaders may be converging on the soft-discount model, but the competition will continue to be vicious.
Get alerts on Travel & leisure industry when a new story is published