Hard Discount on the move

Hard-discount stores represent a major overturn in the food distribution industry during these last ten years. They are an excellent example of business model disruption with a “low cost” approach. And yet, such a success would have taken place without the joint disruption of clients’ behaviour.

Hard-discount supermarkets appeared in France in the late 80’s with the arrival of two precursory brands : Aldi and Lidl, later followed by Leader Price, Ed, Netto. Hard discount brands now represent 13% of the food market, a surprising performance. For a long time, hypermarkets have neglected their threat. But in the last few years, they were forced to react in order to stop their market share erosion. They reinforced their offer through first-price or private label products. The Auchan group has created the concept of self-discount aisles where common products are sold in bulk at discount prices. Other distribution groups have acquired or launched hard discount brands: Ed for the Carrefour group, Leader Price for the Casino group. Such measures are clear evidence of success of the hard discount concept.

The hard-discount store’s format represents an excellent example of business model disruption compared to the traditional hypermarkets and supermarkets principle. They are small sized stores, often close to city centres. Their presentation is basic and the assortment of products is limited. The personnel is reduced and versatile. The prices are low, whether it be on private labels or major brands. The rotation of products is very fast and leads to important stock reductions. The important volumes concentrated on a small number of products leads to high supplier discounts.  This “low cost” model is a very efficient alternative to the supermarket and hypermarket’s system.

However, the business model does not allow us to fully explain the success of hard-discount stores with consumers. It is a disruption in clients’ behaviour  that has established their success. In the begin of their implantation, these outlets were  essentially frequented by people with modest revenues. However, their clientele has quite changed. It is now mostly made up of middle classes and families with young children. These customers find in hard-discounts shops a way to save time. The small size of the store and its limited choice allows them to do their shopping in approximately 20 minutes. Also the distance to get there is short. Such a reversal is even more spectacular since these clients were a privileged target of hypermarkets: nobody had anticipated their defection towards a type of store known as “low quality”.

It is the combination of these two simultaneous disruptions that have provoked the growth of hard-discount stores. It is also these disruptions that blinded their competitors and delayed their reaction. The latter were hypnotised by their own conception of distribution; they did not imagine that a new model could steal customers whom they had already attracted and earned loyalty from.

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