Proximity discount retail are the international trend.

International retail consultant Hans Eysink Smeets on the future of discount in urban areas. Interview by Herman te Pas of Distrifood, the leading FMCG site and magazine of the Netherlands. Published in Distrifood, January 2024.

The trend is favourable for proximity discount. This is mainly due to the difficult economic conditions: a raging inflation and a customer who is tightening her purse strings. Retail consultant Hans Eysink Smeets has an insight into this development of discounters in urban areas. He has a clear tip for service supermarkets that are secretly considering their own discount formula. "All I can say is: Don't do it!"

In Europe there is a clear increase in the number of proximity discount stores, says Hans Eysink Smeets. In his office, in an Amsterdam canal house, the retail consultant begins his explanation with the origins of the discount concept. “Discount once started on the edge of the city, just like hypermarkets,” says Eysink Smeets. 'The center of town was the domain of service supermarkets, the market and, as I call them, mom and pop shops. What you are now seeing in various countries that are making the move from traditional to modern retail, is that you see more and more small discount stores in the middle of the city. In Spain, for example, and in Turkey, Georgia and Greece. All in line with countries where retail is already more developed, such as the United Kingdom. Aldi Local, with an area of 600 square meters, is a formidable competitor to convenience stores there.'

Let us first zoom in on the situation in different countries. How is proximity discount developing in Spain?

Eysink Smeets: 'Dia and Mercadona are the well-known formulas there. Dia was once a service-supermarket franchise concept. That was not a success, so they turned it into a discount concept. Dia did very well by that. But that has changed. Mercadona, once mainly found on the edges of the city, can now also be found in the center, just like Dia. Mercadona makes Dia's life somewhat difficult, because that formula really has national strength. All of Spain buys there. You can compare Mercadona with Vomar in terms of formula. [Vomar is Hollands quickest growing supermarket chain - EyS] Lidl is also moving to the city centers in Spain, making it difficult for Dia. Carrefour, with its hypermarkets on the outskirts of cities, is in serious trouble in Spain.'

You also talk about Turkey.

Eysink Smeets: 'In Turkey you have the BIM formula. A success thanks to ex-Aldi man (and Dutchman) Jos Simons. He went to Turkey with the idea of building a kind of first generation Aldi for a Turkish family business. Simple shops, very limited range, many Turkish own brands. That formula is really going really well and now has many branches in the heart of Istanbul.'

'After BIM, new discount competitors were introduced: SOK and A101. The three of them now control 75 percent of the market in Turkey. Very cheap, very close to the people, that is its strength. They are really copies of each other, there is hardly any difference. Products in the box on the shelf, nothing luxurious, low prices, EDLP and few promotions. They might carry forty promotions a week, not more. They show that the old idea that a small store in a city center should be very expensive is outdated. Migros is the service supermarket in Turkey, and they are having a hard time there. Migros, Carrefour and other service formulas together only have 25 percent of the market in Turkey.'

You also mentioned Georgia.

Eysink Smeets: 'That is an interesting market. Due to the various wars there until 2008, new retail in Georgia only started late. The farmers market, street trading, the greengrocer, home-grown produce, these were big in the country for a long time. Because of that backlog, you see that they are now skipping a few steps in Georgia. The discounter 2Steps [Ori Nabiji in Georgian - T] has in fact copied Aldi and is very successful with EDLP and an enormous traffic. 2Steps stores generate eight to ten times more turnover per square meter than a nearby service supermarket. A huge blow to service and convenience stores shops due to real proximity discount. What you now see is that existing formulas are now starting with proximity discount stores. They are being opened at breakneck speed. There is a good chance that the same situation will arise in Georgia as in Turkey.'

Ultimately, you can no longer be distinctive with a multitude of proximity discounters, right?

Eysink Smeets: 'That's right. In countries with a lot of proximity discounts you see a fierce battle for locations. That's what the battle is all about. It is hard to win just on price because of the tiny differences. Because of this no compromise attitude, the effect of EDLP evaporates. You can opt for more promos, but then you lose the efficiency you had with EDLP. If you look at the whole of Europe, I think Lidl is the big winner of the no compromise formulas. They briefly went in the direction of adding even more value in combination with higher prices, but they are backtracking; Lidl is going for the basics again. No bells and whistles, simpler stores.”

What do you see happening to Lidl's position?

Eysink Smeets: 'Lidl's expansion in Eastern Europe is truly astonishing. They focus on a country and once done, they go for the neighboring country. Lidl does not take over stores, everything is organic growth. They are expanding from scratch and covering the whole of Europe. You also immediately know what Lidl is planning when they cross the border. If they open a DC, they will ultimately go for 200 stores, even if there is only one store left in the country. They don't care.'

'Also striking: 25 to 30 percent of a store's turnover is simply gone if there is a Lidl next to it. Especially in sensitive categories such as fresh. Also look at the modern bakery they have. In Switzerland, Migros has received a lot of criticism from Lidl and also Aldi Süd. The time of dirty Lidl stores is also long gone. They skipped this phase in many new countries.'

I also expect even more proximity discount from Lidl. However, you then run into the demand for real estate. In that case, you do have to take over existing real estate. Aldi Süd is now doing this in the United Kingdom with Aldi Local; with that they move into the inner cities. Stores that are on average twice as large as the average convenience store, with 300 products less than a regular Aldi and a price that is a few percent higher. But still a lot cheaper than other convenience stores, which are therefore having a hard time.'

You mentioned earlier about service supermarkets that are working on their own discount concept. What do you think of that idea?

Eysink Smeets: 'Service formulas in the Netherlands should certainly not try this. The past has also shown this. In the 1980s, Simon de Wit's Albert Heijn tried to create a discount formula with the name Simon. Has failed. Running a discounter within a full-service chain is simply impossible. Look at Tesco: has stopped with discount format Jack's. They got their money's worth from Aldi and Lidl.'

'Would service formulas approach me with that question? Of course. And then I say: don't do it. In my opinion, Albert Heijn is now on the right track. Price Favorites and Hoarding are an ingenious mix of price and promotions. These are promotional activities that have, as it were, become brands in themselves. Solve the discount issue within your own formula.'

'Carrefour also tries it every time. They even owned Dia in Spain - couldn't run it. Now they have Supeco there. Supeco Carrefour. It hasn't been buried yet, but I don't think it will last long. They simply won't be able to cross swords with local discount formulas. And don't forget: With a discount, you also get into arguments at home. For example with your franchisees. They always come up with questions such as 'why are they allowed to charge lower prices', and 'why are they allowed to make losses and do we have to earn all the money to keep the discounter running'.

How do you see the future of discount in the Netherlands?

Eysink Smeets: 'Who will win are chains such as Nettorama, Vomar, Dirk and Lidl. I call them the Mercadona-like formulas. Low prices, pleasant shops, where there are many brands. I also think it's great that Albert Heijn manages to control leakage to discounters in its own unique way. You can also see this in Albert Heijn's growing market share. Dirk made the right decision. When Dirk and Dekamarkt merged, there was only internal conflict. Dirk the low price, while Deka goes for added value. That could only go wrong. Rewe and Penny have also tried that, centralizing at the back. Also went wrong. Rewe goes wild on offers, while Penny focuses on edlp. Then the marketing goes crazy and you get too many tensions. A discounter only wants the lowest price and no hassle.'

Read the article at:

• https://www.distrifood.nl/173975/retailconsultant-hans-eysink-smeets-over-de-toekomst-van-discount-in-stedelijk-gebied