Brand Success in Discounters - Business Insights

Brand Success in Discounters
Strategies for driving sales growth and
new customer acquisition
in association with...

1
Business Insights
Brand Success in Discounters
Strategies for driving sales growth and new customer acquisition
Leading discount fascias market share
in the Netherlands
% market share
12
10
8
6
4
2
0
2005
Lidl
The proliferation of private labels today
Indulgent
85.0%
Rest of market
2002
89.7%
Aldi
Ethnic
Luxury/Ultra
premium
Fair Trade
Ethical
Standard
Value labels
Organic
Healthy
Free-from
Kids
Health
Cheap Lifestyle
Source: Brand Success in Discounters
2002
2005
Aldi Lidl
Source: Brand Success in Discounters
"Aldi had a significant market share in the Netherlands in
2005 of 10.2%, increasing from 8.2% in 2002. Lidl also
experienced a significant increase in market share between
2002 and 2005, increasing from 2.1% to 4.7%. With such
significant growth rates, the Netherlands obviously is an
attractive market for discounters (and brand manufacturers
that intend to supply discounters)..."
"Since the initial response to the discounter threat of same
or lower priced private labels, UK and European retailers
have developed their private label portfolios extensively to
include a number of lines. The proliferation of lines helps to
build brand image and loyalty and improve margins, as well
as allowing supermarkets to become more competitive on
price..."
Exclusive gold standard data from over 80,000
Europanel households and expert analysis from
AiMark and Business Insights...
Since 2002, discounters have added 7,000 stores and in Europe alone have seen total
revenues rise to €78bn, creating both a threat and an opportunity for brand owners.
Brand entry into discounters offers manufacturers the chance to fight private label
growth, acquire wholly new customers and benefit from the growing discounter channel.
There are benefits for discounters too: a more attractive brand offering and a move away
from pure price-based competition. But the key questions are what actually drives brand
success in discounters? And what determines whether a brand listing brings new
customers or cannibalizes existing sales?
Brand Success in Discounters: Strategies for driving sales growth and new customer
acquisition is a new strategic report analyzing the performance of over 300 brands in
discounters across five countries. The report identifies which types of brands show the
highest growth, who benefits most - the retailer or the manufacturer, and what the
optimum pricing levels are. Using gold standard data from GfK and TNS' panel of 80,000
households in France, Germany, Great Britain, Spain and The Netherlands, it provides the
definitive analysis of the factors driving brand success in discounters.
This new report will provide you with:
• Detailed, case-by-case data on performance of 300 brands listed in discounters
across five key countries across France, Germany, Great Britain, Spain and and The
Netherlands.
• Quantification of the risk of cannibalization of sales for manufacturers and
discounters.
• An assessment of the brand opportunity using Aimark's proprietary model for
forecasting incremental sales.
• In-depth insight into the key drivers of brand sales in discounters and their impact
on brand success and failure.
• Actionable recommendations on the best product categories for brands to list,
optimum pricing levels and the best fit with different types of discounters.

Brand Success in Discounters
Strategies for driving sales growth and new customer acquisition
Key findings of this new report:
• In Europe the total discounter market for FMCG (CPG) in 2006 was €78
billion. Discounter turnover is increasing in every European country and market
share is also increasing in all European countries with the exception of Spain.
• The number of discounter stores has increased around the world from
28,000 in 2002 to 35,000 in 2007. Aldi and Lidl had 11,000 stores in Europe
between them in 2002. This had increased to 14,000 in 2005 and is forecast to
grow further to 16,000 in the next three years.
• Great Britain has the lowest levels of cannibalization from the manufacturers
perspective, with 84% of brands studied experiencing cannibalization of under
25%. This indicates that listing a brand at discounters in the country will allow a
manufacturer to reach mostly new buyers.
• Brands with a large market share experience substantially more
cannibalization than small brands for the manufacturer. Specifically, the
average cannibalization rate in the group with the largest brands reaches 37%,
meaning that 63% of sales are derived new buyers of the brand.
• Both suppliers and discounters can benefit from selling manufacturer brands
at discount stores. However, manufacturers tend to experience much less
cannibalization than discounters. On average, more than three quarters of brand
revenues at discounters are not cannibalized, i.e. they come from buyers who
have not purchased the brand before the listing.
This new report will enable you to:
• Benchmark the performance of over 300 brands listed in discounters,
including Gillette, Danone Actimel, Kit Kat and Stella across 17 product
categories.
• Forecast sales growth from listing in discounters, the risk of cannibalization
from customer migration and potential levels of customer acquisition.
• Understand the key drivers of brand success in discounters and how they are
influenced by type of brand, pricing levels and discounter strategy.
• Build effective arguments for brand listing to fast track your entry into the
discount channel.
• Plan an effective marketing strategy for listing your brand, finding the
optimum pricing level and the best retailer partner.
Average price per volume unit (pence)
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Source: Brand Success in Discounters
Business Insights
Price comparison of baked beans in leading
mainstream retailers and discounter in the UK,
average price per volume unit, 2006
Tesco Asda Aldi Lidl
Source: Brand Success in Discounters
Kraft Lindenberger - Leicht
"Kraft has significantly benefited from listing its hard
cheese at Penny in Germany, experiencing low levels of
cannibalization and high incremental sales. Kraft had a
0.2% brand market share in the hard cheese category in
Germany one year before the listing. One year after listing
at Penny, market share increased to 0.3%..."
2
Total baked beans category
Branded
Standard PL
Budget PL
"The average price per volume unit of budget private label
baked beans is similar across mainstream retailers and hard
discounters in the UK. However, discounters do not
necessarily offer the lowest price. In fact, the average price
per volume unit of budget private label baked beans in
Tesco and Asda is slightly lower at 0.16p, compared with
0.17p at Aldi and Lidl. Tesco and Asda are also lower in
price per volume unit of budget private labels in diet
lemonade and soft toilet rolls..."

3
Business Insights
Brand Success in Discounters
Strategies for driving sales growth and new customer acquisition
Levels of cannibalization
Always brands launched by Procter & Gamble
in Germany
Source: Brand Success in Discounters
"Procter & Gamble experienced significant levels of
cannibalization and relatively low incremental sales after
listing the Always brand at Lidl in Germany, when
comparing it to the average of all brands studied. Always
had a 47.7% brand market share in the sanitary pads
category in Germany one year before the listing. One year
after listing at Lidl, brand share increased to 49.2%..."
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Levels of manufacturer cannibalization
across key European countries
>75%
50-75%
25-50%

Business Insights
Table of contents
Brand Success in Discounters: Strategies for driving sales growth and new customer acquisition
EXECUTIVE SUMMARY
CHAPTER 1: THE DISCOUNTER MARKET
OVERVIEW
• Discounter success formulae: the
traditional perspective
- Retail proposition of discounters
- Hard and soft discounting
- The leading global discounters
- Discounter market share
- Penetration
- Frequency
- Spend
- Discount fascias
• Mainstream retail counter strategies
- Private label
- Case study: the UK
- Acquisition/launch of discount fascias
• Discounter success formulae: a new era
- Drivers of change
- Case study: the evolution of Aldi and
Lidl
• Conclusions
CHAPTER 2: OPPORTUNITIES AND
BARRIERS OF LISTING BRANDS IN
DISCOUNTERS
• Coopetition: a feasible mode of existence?
- Opportunities and barriers for the
manufacturer
- Opportunities of supplying brands to
discounters
- Threats of supplying brands to
discounters
- Opportunities and barriers for the
discounter
- Opportunities of adding manufacturer
brands to the product offer
- Threats of adding manufacturer brands
to product offer
- Conclusions
• The study
- Defining success for a brand at a
discounter
- Key variables of interest
- The research approach
CHAPTER 3: BRAND CANNIBALIZATION
AND INCREMENTAL SALES: THE
MANUFACTURER’S PERSPECTIVE
• Results from the manufacturer’s
perspective
- Overview of cannibalization across the
countries
- Overview of incremental sales levels
across the countries
- Country focus
- France
- Germany
- Netherlands
- Spain
- Great Britain
CHAPTER 4: BRAND CANNIBALIZATION
AND INCREMENTAL SALES: THE
DISCOUNTER’S PERSPECTIVE
• Results from the discounter’s perspective
- Overview of cannibalization across the
countries
- Overview of incremental sales across
the countries
- Country focus
- France
- Germany
- Netherlands
- Spain
- Great Britain
CHAPTER 5: DRIVERS OF BRAND
SUCCESS AT DISCOUNTERS
• Brand strength
- Why would brand strength matter?
- Impact of brand strength on
cannibalization and incremental sales for
the manufacturer
- Impact of brand strength on
cannibalization and incremental sales for
the discounter
- Conclusions
• Case studies: high market share brands
- Danone yogurts in Lidl in Spain
- Always sanitary protection pads in Lidl
in Germany
• Case study: low market share brand
- Kraft hard cheese in Penny in Germany
• Discounter category strength
- Why would discounter category
strength matter?
- Impact of discounter category strength
on cannibalization and incremental sales
for the manufacturer
- Impact of discounter category strength
on cannibalization and incremental sales
for the discounter
- Conclusions
• Case studies: high category market
share discounters
- Cuetara sweet biscuits in Plus in Spain
- Mars Bar multi-countlines in Kwik Save
in Great Britain
• Case studies: low category market share
discounters
- Gillette shaving foam in Lidl in
Germany
- Müller Vitality yogurt drinks in Netto in
Great Britain
• Price levels
- Why would the price premium over
private labels matter?
- Impact of price premium on
cannibalization and incremental sales for
the manufacturer
- Impact of price premium on
cannibalization and incremental sales for
the discounter
- Conclusions
• Product type
- Why would product type matter?
- Perishable / non-perishable
- Impulse / planned
• Case study: a perishable brand
- Müller Yogz Corner yogurts in Netto in
Great Britain
• Case study: an impulse brand
- Toblerone chocolate tablets in Lidl in
Germany
• Case study: a planned and non-perishable
brand
- Carling beer in Netto in Great Britain
CHAPTER 6: CONCLUSIONS
• Summary
• Introduction
• Conclusions
4

5
Business Insights
Table of contents continued...
Brand Success in Discounters: Strategies for driving sales growth and new customer acquisition
FIGURES AND TABLES
• Hard and soft discounters
• Global discount retailers ranked in terms of store numbers, 2005
• Discount fascias of mainstream retailers in Europe and the US
• Advertising spend of mainstream retailers and discounters in the
UK, £m, 2001-2005
• Discounters used in the study by country
• Number of brand listings studied in each country
• Manufacturer cannibalization
- France
- Germany
- Netherlands
- Spain
- Great Britain
• Manufacturer incremental sales
- France
- Germany
- Netherlands
- Spain
- Great Britain
• Manufacturer cannibalization and incremental sales
- in Netto, Penny, Plus and Lidl in Germany
- by category in Germany
- in Dia in Spain
- in Kwik Save and Netto in Great Britain
- by category, in Great Britain
• Retailer cannibalization
- France
- Germany
- Netherlands
- Spain
- Great Britain
• Retailer incremental sales
- France
- Germany
- Netherlands
- Spain
- Great Britain
• Retailer cannibalization and incremental sales
- in Netto, Penny, Plus and Lidl in Germany
- in Kwik Save and Netto in Great Britain
- in Dia in Spain
- by category, in Germany
- by category, in Great Britain
• Cannibalization and incremental sales in Spain
- in the yogurt category for Danone and Lidl
- in the sweet biscuit category for Cuetara and Plus in Spain
• Cannibalization and incremental sales in Germany
- in the sanitary protection pad category for Always and Lidl
- in the hard cheese category for Kraft and Penny
- in the shaving foams category for Gillette and Lidl
- in the chocolate tablets category for Toblerone and Lidl
• Cannibalization and incremental sales in Great Britain
- in the multi-countlines category for Mars Bar and Kwik Save
- in the shaving foams category for Müller Vitality and Netto
- in the yogurt category for Müller Yogz Corner and Netto
- in the low alcohol beer category for Carling and Netto
• A variety of forces are pushing discounters to new strategies
• Hard discounter market share, 2002 and 2005
• Penetration of hard discounters, 2002 and 2005
• Frequency of shopping at hard discounters, 2002 and 2005
• Spend per shopper, (€), 2002 and 2005
• Market share of leading discount fascias
- in France, 2002 and 2005
- in GB, 2004 and 2005
- in Germany, 2002 and 2005
- in the Netherlands, 2002 and 2005
- in Spain, 2002 and 2005
• Main growth strategies of the leading discounters in 2007
• Early Tesco Value advertising
• The proliferation of private labels today
• Tesco’s private label ranges
• Price comparison in the UK, average price per volume unit, 2006
- baked beans in leading mainstream retailers and discounter
- diet lemonade in leading mainstream retailers and discounter
- soft toilet rolls in leading mainstream retailers and discounter
• Premium lines at Aldi and Lidl
• Italian private label ranges
• Fresh produce at Aldi and Lidl
• Lidl’s private label organic and Fair Trade lines
• Transfair logo on Lidl’s FairGlobe products
• Non-food in Aldi and Lidl
• Lidl’s promotion of brands in store
• New and old Aldi advertising in the UK
• Key categories at Aldi and Lidl in 5 key countries, 2003-2005
- percentage point change in the share of total spend
- percentage point change in penetration
• Average manufacturer cannibalization and incremental sales
- effect of perishable or non-perishable brands
- effect of impulse or planned brands
- effect of brand market share
- effect of discounter category market share
- effect of price premium over private label
• Average retailer cannibalization and incremental sales
- effect of perishable or non-perishable brands
- effect of impulse or planned brands
- effect of brand market share
- effect of discounter category market share
- effect of price premium over private label
• Müller Little Stars yogurts launched in GB
• Toblerone Pralines
• Carling C2 Beer
• Yogurt brands launched by Danone in Spain
• Lidl organic yogurt
• Always brands launched by Procter & Gamble in Germany
• Kraft Lindenberger - Leicht
• Cuetara Mas Sanas Biscuits
• Mars Delight
• Gillette brands launched by Procter & Gamble in Germany
• Müller Vitality products launched in GB
• Four sources of brand sales at discounters
• Factors that drive brand success at discounters
• Factors that might impact the success of manufacturer brand
listings at discounters

Sample Information
Chapter 5: Drivers of brand success at discounters
Why would brand strength matter?
This report looks at the brand's market share (as it turned out to be a significant predictor and its level is usually well-known to
management) to understand how brand strength is related to a brand's cannibalization levels and incremental sales, from the
manufacturer and discounter perspective respectively. For each of these analyses all cases were first sorted based on the criterion
market share and then split into four equally sized groups (thus each comprising of about 93 brands). The top group contains the
largest brands in our sample, whereas the bottom group contains the smallest brands.
By comparing average levels of cannibalization and incremental sales for each group one can evaluate whether the market share of a
brand has an impact on these measures or not. Assume that in each group the cannibalization rates were identical; then it could be
assumed that brand strength does not have an impact on cannibalization.
Impact of brand strength on cannibalization and incremental sales for the manufacturer
Comparing the degree of manufacturer cannibalization in the four groups shows a very consistent pattern. Large brands experience
substantially more cannibalization than small brands. Specifically, the average cannibalization rate in the group with the largest
brands reached 37%, meaning that 63% of the sales came from new buyers of the brand, but 37% of sales were generated by
existing brand buyers. This figure dropped to single-digits in the groups with small brand market shares, where by definition few
current buyers exist - therefore most of the sales at the discounter will be generated by new brand buyers. However, given the size
of these brands, one wonders whether they are attractive enough to new buyers to generate much in terms of incremental sales.
Figure 5.45 shows a consistent pattern with
respect to incremental sales as well: small
brands (23% and 30% respectively of the
two groups) gained substantially more in
incremental sales than large brands. This is
not surprising because:
• A higher percentage of sales come from
new buyers and cannibalized sales
obviously do not help;
• But more importantly these brands are
very small and their growth starts at a
very low baseline.
One can imagine that a brand with a small
market share can only gain when listed at a
discounter: its exposure to potential buyers
multiplies, the danger of cannibalization is
very low, and current retail partners will be
less concerned about the availability of the
brand in the discount channel given its size.
However, one must also take into
consideration that a 2% increase may be a
considerable success for manufacturers of
small brands.
% of cannibalization & incremental sales
40%
35%
30%
25%
20%
15%
10%
5%
0%
Average manufacturer manufacturer cannibalization
cannibalization
Average manufacturer incremental sales
Business Insights
Figure 5.45: Average manufacturer cannibalization and incremental
sales - effect of brand market share
Top quartile * Second** Third quartile*** Bottom****
quartile
Brand market share
quartile
Large brands, in contrast, face the opposite Source: Europanel
situation: they have to grow from an
already large baseline, most likely their
distribution coverage before the listing was high already, increasing the odds that existing buyers switch channels and contribute to
cannibalization (but not to incremental sales) and that existing partners will be unhappy. However, given the average level of
incremental sales of 7% for the biggest brand in our study, brand managers may be quite willing to face these issues.
37%
7%
15% 17%
15% 17%
9%
23%
Note:
*Top quartile = brands with a market share between 1.9-52%.
**Second quartile = brands with a market share between 0.4-1.9%.
***Third quartile = brands with a market share between 0.1-0.4%.
****Bottom quartile = brands with a market share less than 0.1%.
2%
30%
Cannibalization refers to the percentage of brand sales at the discounter to people who have
purchased the brand at mainstream retailers in the year before.
Incremental sales are the sales of to new buyers (those that are not cannibalized), relative to the
total brand sales the year before.
6

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