For years, discount in North America was dominated by dollar stores and big-box merchants such as Walmart. The European hard discount model did not translate stateside, due to a lack of affinity for private labels and the social stigma of ‘value shopping’.

But things are changing. The recession is over, but its effects on shoppers linger. Economic uncertainty has ignited demand for the once-shunned discount format. And it is no longer the specialists looking to capture market share. The past couple of weeks have seen the launch of two new discount concepts from major grocery retailers - Sobeys launched FreshCo in Ontario

and HEB’s Joe V’s Smart Shop opened in Texas. Smart & Final’s Smartco format debuts in Colorado next month and Giant Eagle continues to expand Valu King in the midwest. Each has the capability of transforming the discount concept into a fresh shopping experience.

The new formats take the most successful aspects of a discount store: offer a limited assortment, display products on pallets or in shelf-ready packaging and strip out ancillary services. The goal will be to capture share of the post-recession shopper, who may no longer be averse to buying private label or bringing their own carrier bags in exchange for low prices. But the stores will differ from traditional discounters in that their operators have years of experience in running well merchandised, grocery-led formats. HEB is arguably the most innovative grocer in the US, while Sobeys is the third largest Canadian supermarket operator. An emphasis on quality and innovation in a no-frills environment will set them apart.

Sobeys and HEB are up against Walmart, which in Texas knocked HEB from the number one position and now has a share of more than a third in the state. In Canada, Walmart only began selling food through its Supercenter format in 2006. There are now 84 Supercenters.

So, ongoing price competition in the market, combined with a step-change in shopper mentality will continue to fuel growth of the discount format in North America, which is expected to grow 8.6% on an annualised basis over the next five years. Dollar General, Aldi and Save-A-Lot will be the key players, opening nearly 1,000 stores in 2010 alone.

But now the grocery specialists are making a play for the sector, the bar will be raised and it is fair to say the discount sector will soon be about much more than just low prices.

Natalie Berg, research director, Planet Retail. For more information contact us on:

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