Executive Summary

Discount RetailingExecutive SummaryExecutive SummaryThis Key Note Market Report examines the UK discount retailing market,which, for the purposes of this report, has been divided into the following twosectors — discount grocery retailers and discount non-grocery retailers. Thegrocery sector is comprised of retailers, such as Aldi, Lidl and Iceland, whilenon-grocery retailers are dominated by outlets such as Primark and Matalan,as well non-clothing specialists such as Poundland. Although these types ofretailers differ in the range of products that they sell, maintaining low costs isthe most essential priority for all such companies operating within the discountmarket.The UK discount retailing market experienced continual growth between 2006and 2010, reaching £28.22bn in 2010. Grocery retailers contributed £8.15bn insales in 2010, while non-grocery retailers accounted for £20.07bn. Despite thelatter remaining the largest sector of the market throughout the reviewperiod, the grocery sector observed the greatest growth between 2006 and2010, which has led to the sector significantly increasing its share of the totalmarket.The discount retailing market has expanded significantly since the recession in2008, which saw many consumers trade down in terms of product choice inorder to curb their expenditure. This was especially apparent in the grocerysector, although non-grocery retailers also saw sales increase over the sameperiod. Growth was maintained in both sectors despite the UK’s exit fromrecession in late-2009. Consumer caution towards spending is believed to havehelped drive sales in the aftermath of the recession, with many households inthe UK still struggling financially due to high levels of unemployment.In 2010, the industry witnessed another surge in sales. A small increase in newconsumers is believed to have been behind this recent growth, as well as anincrease in expenditure on discount products by regular consumers. This loyaltybetween the retailer and consumer will ultimately determine whether theindustry will maintain its status in the future; and when the economy fullyrecovers and consumers once again become less cautious in their spendinghabits, discounters could see a drop in sales.Key Note has forecast further growth for the market in the future, which willreach £42.24bn in 2015. Despite the UK’s exit from recession in 2009, theeconomic outlook has remained somewhat bleak due to the Government’sspending cuts and increases in taxes, while unemployment is expected to riseagain, before gradually declining. However, the economic climate will remainresilient, which will continue to impact consumers’ shopping habits and reducespending. Competition from non-discount retailers will also remain a big threatto the industry, notably from the dominant supermarkets in the UK.© Key Note Ltd 2011 1

Discount RetailingContentsContentsExecutive Summary 11. Market Definition 2REPORT COVERAGE....................................................................................................................2MARKET SECTORS.......................................................................................................................2Discount Grocery Retailers...........................................................................................................2Discount Non-Grocery Retailers..................................................................................................3MARKET TRENDS.........................................................................................................................4Discount Retailers Positively Impacted by the Recession.......................................................4Expansion in the Discount Retailing Industry..........................................................................4Fast-Fashion Phenomena..............................................................................................................5ECONOMIC TRENDS....................................................................................................................5Population.......................................................................................................................................5Table 1.1: UK Resident Population Estimates by Sex (000), Mid-Years 2006-2010...........5Gross Domestic Product................................................................................................................6Table 1.2: UK Gross Domestic Product at Current and Annual Chain-Linked Prices(£m), 2006-2010..............................................................................................................................6Inflation...........................................................................................................................................6Table 1.3: UK Rate of Inflation (%), 2006-2010.......................................................................7Unemployment...............................................................................................................................7Table 1.4: Actual Number of Unemployed Persons in the UK (million), 2006-2010.........7Household Disposable Income....................................................................................................7Table 1.5: UK Household Disposable Income Per Capita (£), 2006-2010............................8MARKET POSITION......................................................................................................................8The UK..............................................................................................................................................8Table 1.6: UK Retail Sales and Discount Retail Sales at Current Prices (£m and %),2006-2010........................................................................................................................................9Table 1.7: UK Food Retail Sales and Discount Grocery Retail Sales by Value at CurrentPrices (£m and %), 2006-2010.....................................................................................................9Table 1.8: UK Clothing and Footwear Retail Sales and Discount Clothingand Footwear Retail Sales by Value at Current Prices (£m and %), 2006-2010..............10Overseas.........................................................................................................................................10© Key Note Ltd 2011

Discount RetailingContents2. Market Size 11THE TOTAL MARKET................................................................................................................11Table 2.1: The Total UK Discount Retailing Market by Sectorby Value at Current Prices (£m at rsp), 2006-2010................................................................11Figure 2.1: The Total UK Discount Retailing Market by Sectorby Value at Current Prices (£m at rsp), 2006-2010................................................................12BY MARKET SECTOR.................................................................................................................12Discount Non-Grocery Retailers................................................................................................12Table 2.2: The UK Discount Non-Grocery Retailing Sector by Value at Current Prices(£m at rsp and %), 2006-2010...................................................................................................13Figure 2.2: The UK Discount Non-Grocery Retailing Sectorby Value at Current Prices (£m at rsp), 2006-2010................................................................14Discount Grocery Retailers.........................................................................................................15Table 2.3: The UK Discount Grocery Retailing Sector by Valueat Current Prices (£m at rsp and %), 2006-2010....................................................................15Figure 2.3: The UK Discount Grocery Retailing Sector by Value at Current Prices(£m at rsp), 2006-2010.................................................................................................................163. Industry Background 18RECENT HISTORY.......................................................................................................................18NUMBER OF COMPANIES.......................................................................................................18EMPLOYMENT............................................................................................................................19REGIONAL VARIATIONS IN THE MARKETPLACE.............................................................19Discount Grocery Retailers.........................................................................................................19Discount Non-Grocery Retailers................................................................................................19DISTRIBUTION.............................................................................................................................20HOW ROBUST IS THE MARKET?...........................................................................................20LEGISLATION...............................................................................................................................21Employee Rights...........................................................................................................................21National Minimum Wage...........................................................................................................21Table 3.1: National Minimum Wage by Age Group (£),Years Ending September 2009-2011 .......................................................................................21Working Time Regulations........................................................................................................22Planning Issues..............................................................................................................................22Sunday Trading.............................................................................................................................22Ethical Trade.................................................................................................................................22Ethical Trading Initiative............................................................................................................23Fairtrade Foundation..................................................................................................................24© Key Note Ltd 2011

Discount RetailingContentsKEY TRADE ASSOCIATIONS....................................................................................................24British Council of Shopping Centres.........................................................................................24British Retail Consortium............................................................................................................244. Competitor Analysis 25THE MARKETPLACE..................................................................................................................25Table 4.1: Selected UK Discount Retailers by Turnover (£000), Latest FinancialYear.................................................................................................................................................25MARKET LEADERS.....................................................................................................................26Discount Grocery Retailers.........................................................................................................26Discount Non-Grocery Retailers................................................................................................30OUTSIDE SUPPLIERS..................................................................................................................34MARKETING ACTIVITY.............................................................................................................34Main Media Advertising Expenditure......................................................................................34Table 4.2: Main Media Advertising Expenditure by Leading Discount Retailers(£000), Years Ending June 2010 and 2010..............................................................................35Methods of Advertising..............................................................................................................365. Strengths, Weaknesses, Opportunities and Threats 37STRENGTHS..................................................................................................................................37WEAKNESSES..............................................................................................................................37OPPORTUNITIES.........................................................................................................................37THREATS.......................................................................................................................................386. Buying Behaviour 39CONSUMER PENETRATION.....................................................................................................39Distance Travelled........................................................................................................................39Table 6.1: Distance Travelled by Consumers for Regular Major Grocery Shop(% of adults), 2008 and 2010.....................................................................................................39Frequency of Shopping...............................................................................................................39Table 6.2: Frequency of Regular Main Shop for Food, Drink and Household Items(% of adults), 2008 and 2010.....................................................................................................40© Key Note Ltd 2011

Discount RetailingContentsFUTURE TRENDS.........................................................................................................................91Customer Loyalty.........................................................................................................................91Maintaining the Discount Appeal............................................................................................92Competitor Expansion into Discount Retailing......................................................................9210. Company Profiles 93ALDI STORES LTD.......................................................................................................................94COSTCO WHOLESALE UK LTD...............................................................................................96ICELAND FOODS LTD................................................................................................................98LIDL LTD......................................................................................................................................100MAKRO SELF SERVICE WHOLESALERS LTD.....................................................................102MATALAN RETAIL LTD...........................................................................................................104THE PEACOCK GROUP PLC...................................................................................................106POUNDLAND LTD....................................................................................................................108POUNDSTRETCHER LTD.........................................................................................................110PRIMARK STORES LTD............................................................................................................112TJX UK.........................................................................................................................................11411. Further Sources 116Associations...............................................................................................................................116Publications...............................................................................................................................116General Sources.......................................................................................................................117Government Publications ....................................................................................................117Other Sources...........................................................................................................................118Key Note Sources ....................................................................................................................119Understanding TGI Data 121Number, Profile, Penetration..............................................................................................121Social Grade...............................................................................................................................122Standard Region......................................................................................................................122Key Note Research 123The Key Note Range of Reports 124© Key Note Ltd 2011