Impact of Aldi, Lidl on grocery market like ‘Uber on taxis’

Wicklow man who formerly ran Morrisons says ‘structural shift’ has taken place in retailing

Dalton Philips: says the impact of the discounters has been a generation of “very educated, savvy consumers in Ireland” who now seek both luxury with value

Dalton Philips: says the impact of the discounters has been a generation of “very educated, savvy consumers in Ireland” who now seek both luxury with value

 

The lightning progress in the Irish and UK grocery markets of discounters Aldi and Lidl represents a “structural shift” comparable to the impact of Uber on the taxi market, according to Dalton Philips, a Wicklow man who formerly ran Brown Thomas and the listed UK supermarket chain Morrisons.

Mr Philips, who now works as a senior adviser for Boston Consulting Group, will give a presentation on retail “disruption” at the end of the month at the Checkout Retail Conference in Dublin’s Mansion House.

In an interview with The Irish Times ahead of the event, Mr Philips said the progress of Aldi and Lidl in the Irish market showed the challenges that lay ahead for incumbent grocers in the UK. The discounters combined have almost 21 per cent of the Irish market and near 10.5 per cent in Britain, according to Kantar.

“Will it go to 20 or more in the UK?” said Mr Philips. “The question is whether it is a cyclical or structural shift. I think it is structural. Retailers in the UK are under huge pressure.”

Mr Philips said the impact of the discounters, and also apparel discounters such as Penneys, has seen a generation of “very educated, savvy consumers in Ireland” who now seek both luxury with value.

Cheaper

“They come to realise: why pay a premium for a product if it doesn’t deliver a different proposition? Why buy something like olive oil in Tesco or Dunnes when you can get it, say, 25 per cent cheaper in a discounter?”

Mr Philips said Irish consumers were now “happy wearing a top from Penneys with designer jeans from Brown Thomas”.

“They are proud to say they bought something inexpensive, and that they’re wearing it with something expensive. You are now seeing this happen in grocery sales too.”

Irish incumbents such as SuperValu-owner Musgrave and Dunnes have “adapted” to the presence of the discounters, he said. He highlighted Dunnes’ move towards more upscale stores and Musgrave’s proficiency in the convenience store market.

Profit margins

“So what should grocers in the UK do? If you look at the valuation multiples of the UK grocers, they all suggest those grocers will have to get back to profit margins of 4 per cent to maintain them. That is going to be very difficult to do.”

Mr Philips ran Morrisons, the fourth biggest UK grocer, for five years until the start of 2015, when he left following pressure from some shareholders opposed to his strategy for combating the growth of discounters.

He ran Brown Thomas towards the end of the boom, and also worked globally for Walmart and in Canada for Loblaw.