Discount computer uk

The UK's 2.7bn [pounds sterling] hard discount sector is suffering a perception problem. Unlike Germany, where more than a third of the 200bn [euro] food market is hard discount, the fiercely secretive European discounters have struggled to get across their message of high quality at rock bottom prices to UK consumers.

The low-cost, no-frills operators have failed to communicate adequately because marketing has been mostly below the line and Britons struggle to grasp the idea that cheap does not necessarily mean inferior.

Poor communication is typical of the hard discounters. Thomas Jellum, managing director of Netto Foodstores, breaks the mould by occasionally speaking on the record in what is a highly secretive sector that usually like its products and stores to do the talking.

Jellum admits the problem is communication. "We have to show these are quality products at extremely low prices. Discounting is regarded as poor, bad quality, tacky, cheap."

It is a double-edged sword. If you spend money on advertising and PR you send out the wrong signals. The hard discount concept is all about keeping expenses to a minimum so the stores can undercut the main supermarkets on their limited ranges of 650 to 1 200 products, depending on the operator.

Jellum says it is a matter of time before the public understands the quality issue. "It's about being persistent. We communicate using the products we offer in the format we have."

The major UK's multiple supermarkets have learned that communication with the press results in free publicity, albeit not always in the form they would like. The hard discounters have not cottoned on to this yet and their attitude is similar to Sainsbury's and Tesco's in the 1970's and early 1980's.

Jellum argues the discounters have fewer weapons in their armoury and they are not about to reveal the ones they have got to the press: "As a multiple supermarket you do not have that reservation because you have lots of tools in the box."

Steve Gotham, senior retail analyst, at Verdict Research, said: "They have PR battles to face up to if they want to really grow their business in the UK. UK consumers are more discriminating about quality. It is about perception of their product quality."

Bryan Roberts, retail analyst at M&M Planet Retail, said: "There needs to be a series of small changes that remove the stigma of shopping in these stores. Tesco had to battle hard to win over Sainsbury's shoppers and Asda has only recently gained mainstream acceptance. There are still too many shoppers who would not be seen dead in an Aldi or Netto."

Aldi's website tries to push the quality angle. It talks about quality products and wide choice "that combine with prices that never fail to astonish first-time shoppers [...] Our stringent selection process enables us to offer our customers own- brand products whose quality matches that of leading brands."

The site also shows how Aldi, which only sells its own brands, is trying to offer something that little bit different in the non-foods arena, taking a leaf out of warehouse club chain Costco's book. Special buys from 7 November include a powerful telescope for 39.99 [pounds sterling], a 69-piece microscope for 14.99 [pounds sterling] and an interactive learning computer to 5-8-year-olds for 29.99 [pounds sterling].

This aside, the UK's hard discount sector has failed to live up to the hype that accompanied the opening of Aldi's first outlet in Birmingham in 1990. Aldi, with 266 stores, the sector leader throughout the 1990's, now trails Lidl on 340 and Netto stands at 129 with an opening programme of a store a month. KwikSave, for years, the face of discounting in the UK, has 704 outlets but is not a hard discounter like the new arrivals.

In the year to 13 October Aldi, Netto and Lidl held a combined 2.5% share of the total grocery sector based on till roll spend, according to Taylor Nelson Sofres. KwikSave had a 1.5% share.

Planet Retail UK puts all the discounters' share of groceries, as opposed to total till roll, including KwikSave, at 4.7%. Bryan Roberts, retail analyst, cannot see the sector topping 10% in the next 5-10 years. But Verdict does not see the hard discounters commanding more than 4% of the grocery market over the same timeframe.

Roberts said: "The big boys are too strong to let these upstarts take more share than around 10%. Tesco, Asda, Morrison et al are fighting hard on price and they have the breadth and service levels that the discounters do not have.

"Sites are running out and we are not suddenly going to get a Germany-esque situation of middle class mums parking up the Volvo and taking a quick spin round Lidl. She'll still be in Waitrose in 10 years' time. I cannot hear Asda or Tesco begging for mercy."

Market commentators believe one of the hard discounters will get knocked out of the equation, with the betting on Netto.

In the 12 years since Aldi first opened in the UK, a plethora of formats have come and gone. Gateway discontinued Food Giant in 1999 which, at its peak, had 41 outlets and Asda pulled the plug on Dales the same year. Ed, belonging to Carrefour, retreated in 1995, as did Penny Market. Home-grown chains such as Discount Giant, Lo-Cost, Normans and Co-op Pioneer also came and went.

Now the Institute of Grocery Distribution warns that Netto is at risk of being increasingly marginalised by the likes of Aldi and Lidl.

Netto's Jellum said: "If we look at size it is easy to say the smallest chain will go but we go for profitable growth and I would be surprised if we are the least profitable of the hard discounters in the UK."

He implies Lidl has been less fussy about property acquisition. "I think we are maybe a little more cautious. If real estate prices go too high we take our targets down. Lidl has been expanding even though the property market has gone up. We do not want to expand at any price. We want new stores to be profitable from day one."

The hard discounters thought they would have an easier ride when they came to British shores. Richard Hyman, chairman of Verdict said: "Established middle market players tried to make it difficult for the hard discounters by introducing their own price-competitive ranges. Price advantages offered by limited line discounters are not what they were because mainstream players have narrowed the game by introducing subbrands that have proved an attractive alternative to enough people to put a bit of a brake on growth."

However, he says there is a long-term role for hard discounters because there is a segment of the population across Europe shopping on a budget and for them, price is the single most important thing.

Hyman believes Aldi, Lidl and Netto are making a profit in the UK but he suggests it is marginal. They make 1%-2% net margins compared with Tesco at 5%-6%.

The one which suffered most was KwikSave. Mike Fine, director of Management Horizons Europe, said: "KwikSave was for many years the benchmark for low price retailing and then over two or three years was not anymore."

But Steve Gotham, senior retail analyst, at Verdict, said discounters have been slow to adapt to UK consumer tastes and have not responded quickly enough to growth in chilled convenience foods, although that was now starting to come through.

"Aldi has been trying to improve its own label product quality and is moving in the right direction but slowly."

Mintei Retail Intelligence says around one in five consumers used a discounter regularly in 2000, no different from two years previously. But the proportion that claimed never to have used a discounter decreased 10% to 49%. It says up to a third of some of the less affluent groups use grocery discounters regularly, and for up to half of those use them on a regular or sometimes basis. But because discounters have limited range, most of their shoppers have to go elsewhere to complete a typical week's grocery shopping.

This makes location of discounters in terms of proximity to a mainstream food retailer an important factor but also provides the major multiples with the opportunity to win over such shoppers with carefully targeted price cuts on key lines.

The major multiple supermarket chains have been struggling to secure planning consent for large stores and this month's purchase by Tesco of T&S Stores and Co-operative Group's acquisition of Alldays shows the battleground of the future will be in the smaller stores' arena putting further pressure on the discounters in site acquisition.

Mintel says unless discounters are able to win over greater proportions of those in the convenience-orientated consumer groups, there seems little prospect of discounters significantly increasing their national market penetration.

Unless, and until, it becomes fashionable to shop at discounters, they will mainly appeal to those that are primarily driven by economic necessity, it says.