The grocery industry is facing a lot of change from a variety of different fronts. Not least of these is the deep discount grocer, which was once relegated to the lowest-income, cash-strapped shopper demographics. Deep discounters are taking inspiration from format successes in Europe while leveraging the latest shopper habits to challenge the traditional supermarket retailer. The appeal is drawing in one of the largest spenders, too — Millennials.
Deep Discount Growth in the U.S.
Conventional supermarkets remain the leader in the industry overall. However, while spending in these stores remains mostly stagnant, the percent change in the number of trips per household at deep discount grocers such as Aldi and Save-A-Lot is outpacing every other type. According to Nielsen, where trips to discount retailers lifted 2.9%, supercenters only saw the number of trips lift by 2.3%, and conventional grocers grew by only .5%. Some detractors may point out that only 40% of families shop at deep discounters and that spend per trip at these stores fell somewhat (.3%) as an indication of their limitations. However, spend decreased across all grocery channels, and it dropped for conventional stores (.7%). For discount grocers, that means there is balance — even as price per trip falls slightly, many more trips are occurring. This clearly indicates significant room for growth and increasing traction in an industry given to oversaturation.
Reports reference one major contributing factor: the increasing availability and quality of private label (i.e., store-brand) products. Popularity for these products is growing across grocer categories thanks to the fact that, unlike previous incarnations, they provide the same if not better level of quality as brand-name products at a significantly more affordable price. The same Nielsen report noted that private labels carry 49% of the dollar share at deep discount grocers, more than twice that of the next closest channel, warehouse clubs (24% of share).
Shoppers have headed to these retailers especially for store brands in grocery, dairy, and frozen food departments. These categories grew 3.3%, 5.7%, and 3.7% in trips respectively. When taken in context with the fact that these represent a vast majority of share in sales at discounters — 52%, 72%, 53%, respectively — this further propels this channel toward growth and greater market share. This ends up being amplified by store size and convenience. As Food Dive shares, “They use a smaller footprint with limited product selection composed largely of cheaper, private brand labels. Strong operating efficiencies allow them to offer lower prices without sacrificing healthy margins and overall profitability.”
Discount grocers are solidifying their potential as major players in the grocery market by expanding their number of stores, size, and fresh and organic offerings. Shoppers for this retailer category include many more than those with a limited budget. Even people with higher incomes are seeing the value they can get at these stores since they’re able to find quality products at lower prices. Without that traditional price barrier, deep discount retailers also attract people across age groups and other demographics.
Discount Grocers Speak the Millennial Language
The Millennial generation makes up 28% of spending per person per day, accounting for a whopping $600 billion per year, and it’s expected to increase to 35% by 2030, according to Forbes. Nielsen has discovered that Millennial shoppers are the most likely age demographic to drive digital groceries, yet despite assumptions to the contrary, they do most of their shopping in stores. Business Insider reported on a recent study, and noted that while this generation is responsible for roughly 23% of U.S. spend on dining out (or about $96 billion per year), when looking only at information about eating in, they prefer shopping at a brick-and-mortar grocers over deliveries, be that from digital orders for groceries, meal kit subscriptions, or restaurant take-out. As much as 90% of Millennials’ budget for eating at home went toward physical grocers.
What does make sense is that close to 80% of this generation makes purchasing decisions swayed by price. Forbes notes that, “the reliance that retailers and brand owners have had on brands to motivate shoppers may be misplaced… It appears that Millennial shoppers, like their parents, are still highly motivated by the price and the discount.” What’s more, Convenience Store Decisions states that 48% of Millennials don’t even consider it when buying, so brand loyalty only goes so far. Also, two-thirds are willing to choose a different one if it gives a discount of at least 30%.
Since Millennials prefer price and discounts, they are a strong fit with the low prices offered by deep discount grocers. However, these retailers also win Millennials over with their quality private label products offering authenticity and transparency that they don’t necessarily get from brand name products or traditional grocers. Deep discount grocers are different from traditional stores in numerous ways. They are able to list lower prices by simplifying their business models and stores. To capitalize on the Millennial mindset, brands should be aware that this age group is not particularly loyal to brands. Focusing on connecting the shopper to the brand and making efforts to maintain loyalty will not necessarily pay off with this group. Instead, brands will be more successful by offering discounts to Millennials.