The discounters have lost share during the pandemic as more and more grocery shoppers switched to online. But digital moves are afoot at Aldi, Lidl and Poundland. Retail Week reports.

  • Aldi is trialling click and collect, while Poundland plans to launch a transactional website next year 
  • Ocado’s Luke Jensen says discounters will need an innovative approach to ecommerce, “rather than just adopting what others are doing”
  • Industry experts suggest partnerships could be a good option to keep costs down

Coronavirus has completely transformed the grocery landscape, both in terms of consumer demand and supermarkets’ capacity to fulfil it. 

One of the biggest changes is the growth in online shopping. 

In terms of overall market share, online accounted for 12.5% of total sales in the latest Kantar figures to September 6 – down from a peak in June of more than 13.5% – compared with 7% in 2019. Since March, customers have bought an extra £3.2bn worth of groceries online. 

This seismic shift has seen Ocado’s market capitalisation balloon to more than £21bn from just £7bn in February and has led Tesco to treble capacity to meet spiralling demand. 

Aldi Click and Collect 1

Aldi is rolling out a click-and-collect trial to customers after a successful staff pilot

However, it has also left discounters Aldi and Lidl in something of a bind. Although Aldi has been selling wines, spirits and a limited selection of general merchandise online since 2016, digital has been a channel largely ignored by the discounters. 

And it could cost them market share. Aldi and Lidl saw their share slip during lockdown when ecommerce grocery began to explode. Although both have seen an improvement in recent months, it still lags pre-lockdown levels.

But it appears the two are doing something about it by finally embracing digital.

And it’s no surprise, according to Ocado Solutions chief executive Luke Jensen.

“There’s no doubt that now is the time that everyone has to think about this. There’s been such a surge in demand,” he says. “The extent to which you’re likely to lose trade has become starker now than ever before in terms of having an online solution.”

Let’s get digital

So what have the discounters done?

Aldi has been adding digital enhancements since the beginning of lockdown and was one of the first supermarkets to launch home-delivery food boxes for shielding customers in April, its first proper foray into grocery delivery in the UK.

It followed that up with a delivery trial with Deliveroo in May, which it has since expanded from the Midlands to London, and yesterday it rolled out a click-and-collect trial to customers near its Loughborough store after a successful staff pilot.

Although Lidl has not launched online delivery of any sort, it has rolled out its Lidl Plus app to UK customers since the beginning of August.

The app offers customers a range of price coupons, scratchcards and a monthly reward scheme, and provides “an even better tailored shopping experience for our customers, as well as to thank them for their loyalty”, according to Lidl UK boss Christian Härtnagel. It also opens up a range of additional services, such as a store locator and digital receipts. 

Lidl Plus app

The Lidl Plus app offers price coupons, scratchcards and a monthly reward scheme

Retail marketing specialist TCC Global’s UK managing director Sebastian Hill says the app launch signifies that Lidl has “realised they shouldn’t compete on price alone” and that the myriad features will “increase the brand’s connections with customers both in and out of stores”.

Late to the party

There may have been a flurry of digital activity over the past few months, but the discounters are still lagging behind the rest of the UK grocery industry.

Edge by Ascential research director David Gordon says this is true to form: “Historically, the discounters have never led from the front. They’ve always operated by watching, waiting and then, when they’re clearer on what a successful format or formula is, they move quickly and progress at scale. They’ve always done that very successfully.”

But are they too late to the online party?

“When Morrisons finally got around to offering online home delivery five years or so ago, we all thought they were late to the party then,” says one online grocery expert.

However, he says their reticence to sell online is completely understandable. “Can you beat them up for not wanting to go after volume in a market that was not, certainly pre-Covid, very profitable?”

He argues that, while the discounters and supermarket competitors may sell similar products, the razor-thin margins Aldi and Lidl operate on to deliver market-beating prices effectively mean they are operating in a different marketplace to other grocers where it is more challenging to make money.

But could they overcome the profitability challenge and launch a full ecommerce offer?

One discounter who believes they can, and is launching a transactional website next year, is Poundland.

This is not new ground for the pound shop. It previously traded online, but closed down the service in 2016. 

Poundland’s director of transformation Mat Ankers says the cost considerations of ecommerce are front of mind in its new online venture.

“We need to think about every element of cost, like we do in stores, and engineer it out. We’re in a gutter fight and that’s how we’ll approach it”

Mat Ankers, Poundland

Poundland is turning one of its three stores in Cannock, Staffordshire, into an online fulfilment centre for the service.

Ankers says: “This is going to be a pilot – it’s very tentative steps. We’ll learn from everyone who’s already paid their school fees. It’s about utilising assets that we already have and our operational experience.”

“We want to do it quite differently across the entire supply chain. We need to think about every element of cost, like we do in stores, and engineer it out. We’re in a gutter fight and that’s how we’ll approach it.”

Could the German discounters follow suit?

Härtnagel seems unconvinced about the staying power of online, which could rule out a full ecommerce offer.

“Online has clearly been an important channel during this crisis, to bring food in the safest way to vulnerable and shielding customers, but this is not the new normal,” Härtnagel told The Times earlier this month.

“We haven’t arrived there yet. I call it the temporary normal that we’re in.” 

However, it may be a different story at Aldi and its recently launched click-and-collect service could pave the wave to a wider online offer.

A source close to Aldi says it is paying attention to the shift in ecommerce that has been driven by the pandemic. But the source insists the retailer is unlikely to venture into this market until it can figure out how to reduce the costs associated with home delivery as it refuses to increase its prices to offset rising overheads.

Can the discounters make money online?

Poundland (5)

Poundland is launching a transactional website next year 

Jensen says not compromising their low-price model will be the discounters’ biggest challenge in the world of ecommerce. ”When you do online, if you use the traditional methods – in-store fulfilment and so on – you’re basically just adding extra costs to your existing cost base,” he says. 

“If your model is based on having the lowest cost base in the industry, you really can’t afford to mess it up by adding costs.”

But Jensen believes there is likely a way that Aldi could scale a home-delivery business nationally without compromising on price. “I’m sure there is a way of doing a low-cost online model that can be made to work for the discounters.” 

He believes it would require some innovation on Aldi’s side, “rather than just adopting what others are doing”.

“Click and collect looks operationally more easy, but I’ve found it to be less profitable than home delivery, ironically”

Online grocery expert 

However, Jensen does not think Aldi’s newly launched click-and-collect service is the route to online success for the grocer.

The online grocery expert agrees. He says: “Click and collect looks operationally more easy, but I’ve found it to be less profitable than home delivery, ironically.”

So what model can work for the discounters online?

Gordon says partnering with other players could be the way forward. He points to Aldi’s partnership with grocery delivery firm Instacart in the US as one possible way it could eventually make home delivery work.

“Aldi, certainly in the US, is almost leading in this field. It’s built up its partnership with Instacart and recently rolled that out nationally. The fact that the model has worked in the US is very encouraging for Aldi in the UK,” he says.

Gordon says that Aldi could form a similar partnership with a UK player, akin to Morrisons’ tie-up with Amazon.

IGD retail analyst Lucy Ingram also believes third parties could “be a good option for discounters”, but does note that the added costs of paying an intermediary are not insignificant.

From an online capex perspective Aldi has spent little so far, which the online grocery expert applauds.

“If you compare that to where M&S is – it has outlaid more than £1bn before making its first online delivery.”

In a sense, then, the discounters broadly find themselves in a similar situation with online to that of the supermarkets a decade or more ago – aware of the growing opportunities presented, but unsure of which way to go. 

They will be watching Poundland’s venture closely and working out the right time – and the right model – to make their own online play.