Supply chain secrets of the discount supermarkets

posted by Will Lovatt
31 January 2018

Flexibility and constant change is helping discount supermarkets achieve greater market share, says Will Lovatt, vice president EMEA at Llamasoft

At the start of the summer a renowned discount supermarket quietly wheeled boxes of inflatable hot tubs onto its shop floors, stacking them neatly among the groceries. The combined timing and price of the offer was irresistible to shoppers priming themselves for the long awaited warm weather and the buzz spread across social media, quickly achieving headline status in UK papers.

This sales strategy by discount supermarkets is challenging traditional retailers and achieving good results, with Lidl and Aldi growing greatest market share according to the Kantar Worldpanel report in October.  Collectively they added an additional £390 million in sales in the third quarter of 2017, which accounted for half of the entire market’s overall growth in the period.

The main instigator for discounters continued success is their clever use of supply chain software that enables them to cherry pick the very best offers from across their supply chain networks and place these on shop floors at the right time and the right price to achieve monumental sales.

Seeing beyond spot-buys and traditional buying practices

Traditionally, discount retailers were a source of amusement for consumers thanks to bizarrely timed offers such as ski gloves in June and bikinis in December, yet these offers still sold well. Such offers were results of spot-buys – one-off opportunities to purchase bulk consignments from suppliers at incredibly low prices. Without enough warehouse space or budget for additional storage, the consignments would be sent straight to the stores and placed on the shop floor.

Historically, there was a stark choice for any retailer. In order to make the most of great spot buying prices, the business was forced to make continuous and potentially risky adjustments to the customer offer.

The alternative model has retailers operating a highly efficient buying practice to deliver a consistent range of products to their stores, but in doing so they lose the dynamic ability to take advantage of compelling offers.    

Embracing the sophistication

What’s changed for the discounters is the sheer scale and sophistication of their supply chain operations, enabling them to find offers from suppliers across their network in any geography, and assemble those in a way that provides a great (and consistent enough) experience for the shopper.

By assessing supply chain network capacity, product pricing and availability, logistics and storage costs in one intelligent model, they can take advantage of offers and secure deals on products which the traditional retailers are unable to entertain.

The continued growth of the discounters will only further fuel their ability to drive improved supplier deals and improve their reach to attract interesting buying opportunities. 

By managing their supply chains efficiently, retailers can quickly analyse on a day to day basis the multiple sources of supply and all of the associated supply chain costs to consider any potential source, even when the service conditions change.

Where supply chain design was once a consultant-led process that would take place annually or across even greater periods of time, the evaluation and re-modelling of the supply chain is now a continual process and this approach is directly attributed to the success of the nation’s new favourite supermarkets – those once seen as the budget stores which are now stealing the market share through consistent, relevant and well sourced core offers.

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