UK discounters face up to high street war

SBHD: Discounters Kwik Save and Iceland have been hit hard by Euro firms, and need to fight back. By David Benady

Iceland’s decision to go back to basics and focus anew on frozen foods comes at a crucial time for high street food retailers (MW March 31).

The European discounters are bringing kamikaze price-cutting to UK food retailing, while the superstore operators stake their future on town centres and loyalty schemes to capture shoppers.

Iceland and Kwik Save are sandwiched between the two and are under pressure to look again at their marketing strategies to counter the dual threat.

“Both chains took their eyes off the ball and moved away from their core customers,” says one retail analyst. “Now that Iceland is going back to basics, Kwik Save should learn a similar lesson. Unfortunately it is stuck with what it has got.”

Kwik Save is historically Britain’s number one discounter. But it has been hit hard by European arrivistes such as Lidl, Ed, Aldi and Netto. AGB data shows that the chain’s market share has slipped 0.5 per cent to six per cent over the past year.

The European discounters saw the opportunity to launch into the UK in the Eighties, after UK chains, particularly Tesco and Kwik Save, drifted away from their discount base.

Kwik Save has broken one of the main rules of food discounting by expanding its range of products to more than 3,000 to try to put distance between itself and new discounters. This compares with the 800 lines offered by rivals Lidl and Aldi.

Retail analysts claim that the move to stock a wider range of products signals Kwik Save’s break with traditional food discounting.

Discounters normally work on the principle of selling large quantities of a small number of lines. Widening the product range means many of the new lines could sell more slowly, leading to increased distribution costs.

Kwik Save’s marketing director Nick Goss says: “We are a hard discounter with a wide range but a limited assortment of goods – we don’t have multiples of products. We have expanded the range over the past year from under 1,000 to 3,500 because that was what our customers wanted.”

Kwik Save could turn the width of ranges to its advantage, but only if it manages to become a target for the big weekly shop. Most discounters are seen as top-up destinations, where shoppers go for extras after doing their weekly shopping at a superstore.

Goss says Kwik Save will continue to sell branded goods, and increase its No Frills budget brand from 130 to more than 200. The chain is also expanding in the South-East and South-West.

Kwik Save is experimenting with different formats but denies that it is looking to develop a chain of convenience outlets, which would be a big break with its existing discount strategy.

The chain has an advantage over its discount rivals. With a £3bn turnover on basic lines every year, it can make economies on its buying, compared with the others.

Iceland’s problem is similar to Kwik Save’s in that people go there to top up their main weekly shop. As such, it has little customer loyalty and could be hit hard by the loyalty schemes operated by Tesco and Safeway.

Iceland customers are lured by the constant discount promotions the chain offers, and many will switch spending to wherever the discounts are greatest.

Loyalty cards could pull these shoppers into the big chains and away from smaller high street players.

It took a year with consultants Bain, for Iceland to recognise it needed to focus on frozen foods to give it a point of difference. Its new upright freezers will give the frozen food a premium presentation, and the increased storage space will free space for chilled ready meals.

Iceland is positioned against supermarkets that are themselves galloping back to town centres. Tesco has its Metro high-street store concept; Sainsbury’s version is Central.

Iceland is able substantially to undercut these high street supermarkets, which stock only five per cent frozen foods.

Analyst Sally Ronald of Panmure Gordon says: “Iceland introduced just 80 new frozen products last year, but this year is planning 250 launches. It trades well on the high street, but has a lower transaction value than the supermarkets. It has recognised that frozen food is its main point of difference.”

Iceland’s strategy has been “all over the place”, according to one analyst, but maybe its new positioning now sits more comfortably.

Kwik Save, on the other hand, has yet to define itself clearly.