What can Travel Retailers learn from Discounters?

Discounters, especially hard discounters such as Aldi and Lidl, have a very different business model to retailers in the Global Travel Retail (GTR) channel. However what can travel retailers learn from Discounters? This was one of my thoughts as I attended the European Discounters Workshop by Kantar Retail in Frankfurt, Germany.

For Kantar Retail events – please click here.

It may be surprising to consider Hard Discounters as an example to follow by the GTR channel, however the speed of change across Europe, in particular for Aldi and Lidl is intense. There is a high degree of testing and learning with retail formats, influencing shopper dynamics, development of new capabilities around mobile, big data, eCommerce and global, all of which is underpinned by discounters key capability of efficiency.

Equally surprising however, is the fact that discounters are stretching their brands online into eCommerce and also the type of the products sold by the discounters, such as bottles of wine priced at 199 euros via Lidl’s Foire aux Vins (Wine Fair) website in France.

Aldi and Lidl also have a similar issue to Travel retailers in that their penetration is low (or lower in comparison to multiple grocers such as Tesco in the UK) and therefore discounters have the issue that their shoppers visit less often and spend less as they have fewer shoppers, even though per occasion is the same spend as multiple grocers. Therefore they need to find alternative ways to grow market share and increase penetration.

So based on what Ray Gaul and the team from Kantar Retail presented at the discounters workshop, my own thoughts on what travel retailers could learn from hard discounters are as follows:

1) Have More Flexibility in Store

New stores for Lidl and Aldi have a modular approach and high degree of flexibility, with over 90% of total retail space either temporary space or flexible space. Only a small part of the store is deemed as permanent space. This allows the discounters to better cope with promotional demand and volatility, seasonal peaks, allows them to utilise the space in different ways to attract consumers/ shoppers into the store when typically not as busy (such as in certain days of the week), allows them to reset the space where the category resides in order to influence shopper flow within the store, etc. Gondola end flexibility and pop up promotional areas will also help to drive increased sales. Ultimately this overall approach to retail allows the discounters to adapt or change their stores more quickly than their rivals and unlocks merchandising and sales opportunities.

2) Improve the Value perception and use Limited Time Offers

Value perception in the GTR channel is constantly being eroded and challenged as transparency increases through the internet and alternative business models, such as eCommerce undermine its offering. I have previously written on this topic and believe that other variables aside from price should be more strongly communicated to the consumer in order to defend this position within GTR. Additionally, it may be worth considering the limited price offers used by hard discounters on one-off products and/or a limited range of skus in order to defend the price variable in particular, such as Aldi’s Special Buys. For reference, the app for Aldi Special Buys only has a limited range of c. 300 products and it customises what you are offered based on your profile and purchase history.

A watch out here is that Aldi and Lidl do not always tackle the issue in the same way. In Germany, they are fighting on price (i.e. a price war) and yet German shoppers know them for quality, therefore this focus on price is eroding their value proposition/ value perception in Germany.

3) Use eCommerce to fix or extend the offer in store

eCommerce is playing a more prominent role for discounters. Aldi in the UK has used it to fix its offer by moving the sale of some of its non food items to online in order to alleviate the issue of high footfall in store at certain days of the week, which creates a negative shopping experience. By moving footfall online, they can fix the offer in store.

Lidl is adding more categories to its eCommerce platform and also extending its offer beyond what is available in store in Germany, by following Amazon with a fresh food delivery service through the purchase of start-up Kochzauber – see the article on Retail Gazette.

Travel retailers can also move beyond the confines of the airport or cruise ship by offering additional products, services and experiences via eCommerce beyond the bricks and mortar stores. The topic of eCommerce in Travel Retail was discussed at the recent Trinity Forum – click here for the link.

4) Improve Communication of Brand Promise to Shoppers instore 

Aldi’s brand promise is covered in 3 pillars: Simplicity, Value, Quality. They are working on improving their communication to shoppers of this brand promise via better signage in store. This also includes the use of innovation through LED signage which is differentiated and elevates the store experience above the norm. Digital signage also gives them the flexibility to communicate different messages to shoppers. They are working on developing this further in their test stores – see this article (in German but can be translated to English via Google).

How can travel retail improve its value perception through better communication to shoppers (supported by the right level and type of signage) in store and online?

The importance of good and clear shopper communication cannot be underestimated as per the challenges in UK airports last year around VAT and the subsequent voluntary code of practice for tax free transparency as a result – click here for article.

5) Increased Provenance/ Sense of Place

Aldi and Lidl are being challenged across different markets by other retailers – whether local or international players. In certain locations such as in Eastern Europe, provenance is becoming increasingly important through the offer of locally produced goods or products with a local story to tell. This sense of place for hard discounters is important, can represent over 50% of their total offer in some locations and is a trend reflected in travel retail also, where shoppers are not looking for the same offering across every GTR location and expect a more diverse range and a story to support those listings.

6) Test & Learn Mentality

Hard discounters are looking to move their position with shoppers from strength in simplicity to strength in surprise, whilst keeping its efficiency at its core. To do so they need to trial new mechanics, fail in the process, refine their model or approach and continue to actively manage risk. This mentality allows them to create unique events, access new retail opportunities, trial different approaches, reach out to different consumer/ shopper groups, communicate in different ways, and ultimately to engage with their target audience.

On a final note, I just would like to clarify that I am not suggesting at all that the hard discounters have a better model than the travel retailer model. Rather, I think it is always worthwhile viewing other sectors and channels and learn from what is working for them and taking the time to think about how this could be applied in order to improve our own model in the GTR channel. At least this was the thinking and intention behind this blog. I hope it generates some food for thought if nothing else!