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SPOTLIGHT ON THE NETHERLANDS: REVIVAL OF ALDI
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SPOTLIGHT ON THE NETHERLANDS: REVIVAL OF ALDI

Hard discounters in the Netherlands have been growing since 2000. Till 2004, both Aldi and Lidl had shown growth due to increasing store numbers, with Aldi and Lidl taking over many locations of other traditional supermarkets in the Netherlands. These smaller locations often don’t have the space required for a regular supermarket — which usually carry more than 10,000 SKUs — but are perfectly right for a hard discounter, with a smaller assortment of around 1,500 SKUs.

And while Lidl still shows good growth, Aldi has lost market share since 2004 despite its growing number of stores. The additional stores were not attracting enough additional shoppers for Aldi, resulting in a lower turnover per store. The differentiator with Lidl and Aldi was that Lidl continued to grow, not only in number of stores, but by repositioning itself from a hard discounter to a store emphasizing service, featuring a larger assortment and modern store format. 

Aldi got the message. It started to upgrade their stores in 2012 and increase their assortment to keep shoppers coming. The reasoning to add top brands to their assortment was clear: to stop shopper migration to other retailers and retain shopper loyalty; to attract new shoppers (with a preference for market leaders like Coke, Mars, and Nutella); and to highlight how much cheaper Aldi’s private label brands were than top brands.

And their strategy appears to be paying off in some cases. After Aldi added top brands to their assortment, the company started gaining share in the categories and segments to which they added those brands. But this doesn’t appear to be enough: while growth is seen in selected segments, Aldi still has a flat market share when looking at the total growth in the market. With Aldi’s success story not being as clear-cut as Lidl’s in Belgium, manufacturers have a choice to make: to list or not to list.

Here are some pros and cons to round out the argument.

PROS:

Increasing penetration. Manufacturers may reach a higher penetration for their product by listing at Aldi, potentially reaching Aldi-exclusive shoppers.

Choice of product. The manufacturer can choose to use the same SKUs as with other retailers in the market or can use differentiated SKUs. So alignment on branding, not necessarily on packaging.

CONS:

Aldi normally is at the low end of the pricing spectrum. From a manufacturer point of view, this might be crucial. So good advice in terms of pricing is a necessity. The manufacturer can advise a certain price for their products, but will Aldi accept it.

Aldi is winning share in the categories in which they list top brands. On the surface, this appears to be a win-win situation for Aldi and the manufacturer. But this may also result in price erosion. For example, if Aldi is at a relatively low pricing point, other manufacturers may lower their prices to (almost) match the pricing level of Aldi.

CONCLUSION:

While Aldi’s overall volume of sales is growing, the total value of sales is limited. For the manufacturer, there is no difference when they use identical SKUs for other retailers or when they differentiate them for Aldi. The other retailers will recalculate to an equivalent volume to compare prices.

And when price erosion is happening, the balance is more in favor of Aldi then for the manufacturer.