Mark Ritson: Aldi’s arrival on the grocery scene 25 years ago set the stage for the future of supermarkets

Aldi’s arrival in the UK in 1990 didn’t cause much of a stir but it heralded an irrevocable change for the future of  branding.

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Where were you on 5th April 1990? Your humble columnist was knee deep in his marketing degree at Lancaster University, probably about to flunk consumer behaviour with Professor Richard Elliott because his undergraduate thirst for Boddington’s was outpacing his appetite for marketing theory.

I ask because it’s highly unlikely you, or I, would have appreciated the significance of that date. It probably came and went without a flicker of acknowledgement. But it is now clear that on that April morning 25 years ago the future of branding in this country began to change irrevocably because it was the day that the first Aldi opened in the UK.

It is worth casting your mind back to what the retail and FMCG industries looked like at the start of the 90s. The age of private label was about to begin and all the big supermarkets would respond to the growing diversity in the British market by offering more brands, private labels and SKUs as a means of differentiating themselves and driving sales. The big chains would eventually quadruple their product lines until they all offered in excess of 40,000 SKUs in their large format stores. These stores were also getting physically larger, growing by 50% during the 1990s to accommodate their increasing product ranges.

The growing demand for products at the retail level was being met by the big FMCG companies. Long before Unilever embarked on its Path to Growth strategy and P&G started culling what would become more than 90% of its brands, the two consumer goods giants were each managing portfolios in excess of 1,500 brands in 1990.

More was more back then. And yet through this period of branded excess a couple of key facts remained unchanged. Despite being deluged with more than 40,000 options, the average British household used around 300 brands a year, and only half of that shortlist were used regularly.

Something had to give, and the slow but enduring growth of Aldi over the past 25 years was a testament to not only its low prices but the peculiar simplicity of its merchandising strategy. Only 1,300 SKUs and hardly any manufacturer brands spoke perfectly to the increasing desire of consumers to have simpler grocery shopping.

The large supermarket chains have now realised they are too big in almost every respect and will scale down everything that they once scaled up in the 1990s. Product ranges, brand offerings, store numbers and store sizes will all be cut dramatically. Tesco, the biggest of the big four in the 1990s growth period, will lead this parsimonious revolution. It has brought in consulting group BCG, the masters of brand culling thanks to years of work with the big FMCG companies, to advise it on exactly how and where it should cut. BCG will prove brutally effective in slimming down Tesco and, in turn, inspiring the other big supermarkets to follow suit.

This is obviously a bigger issue than just retail consolidation. Most manufacturers, who depend on the supermarkets for most of their sales, are waiting to see what this means for them. Most are anticipating that around 30% of supermarket SKUs will be excised, but I think that is way off. For Tesco and Sainsbury’s to restore profitability and combat the threat from discounters, they will need to reduce their SKUs by 50%, and store sizes will follow suit.

The repercussions will be enormous. Take wine, for example, where a large Tesco offers up to 750 options versus Aldi’s focussed assortment of no more than 20. It’s inconceivable that Tesco will offer more than 250 options in the near future. “The days of wall papering shelves with lots of brands which all do the same thing are gone,” one wine supplier explained to Off License News this month. “All the grocers are looking at the same model and will probably do the same eventually. The discounters have shown you don’t have to have big ranges to keep consumers happy,” explained another.

It might have taken a quarter of a century, but the implications of Aldi opening 25 years ago in a quiet suburb in Birmingham are just beginning to become apparent.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Agree the impact of Aldi continues to place a cloud over traditional grocery retailers and suppliers.
    In some markets the entrenched retailers seem to have been Aldi’s biggest friend. Quickly load up Private Label ranges, cut branded ranges and play price games on major brands. Try to be Aldi without the cost model!
    The impact has been to educate consumers to accept Private Label, devalue brands and prices and train consumers to accept less range. Makes the leap to Aldi easier for consumers.
    Supplier’s declining volumes and margins has meant less innovation and brand marketing support (the point of difference vs Aldi) and has seen many move to supply Aldi to fill their under utilised factories. This feeds Aldi’s growth – national supply chains, low cost – high quality supply.
    Not sure anyone has a plan to change the current game?

  2. From a retailer perspective all you say makes complete sense, but there are now significant numbers of consumers who like and want choice, and who enjoy discovering new brands and food ideas.
    Within the future grocery environment there should be space for a retailer who continues to offer a broader range to suit this audience of discerning, inquisitive (invariably premium) shoppers – but who will be brave enough to grab this territory?

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