With the Russian chain Mere, an ambitious hard discounter is entering the mature Western European market. Can the newcomer put Aldi and Lidl under pressure? The plans do not seem without chance, the timing is perfect…
The wheel of retailing
France, Great Britain, Belgium, Austria and Italy are on the wish list of the ambitious Russian hard-discount chain Mere. The retailer already has stores in Germany and Spain. In the east, the chain is active in Romania, Poland, Lithuania and Latvia. Under the name Svetofor, the company is successful in Russia, Belarus and Kazakhstan. With more than 2,000 stores, it is clear that there are no amateurs at work here. This company is on a mission to conquer the European market in a very systematic way. A market that is, however, already quite saturated, and where the low end is well served by global players such as Aldi and Lidl. So where are the opportunities?
We refer to a well-known theory from retail marketing, known as the “wheel of retailing“. This theory states that newcomers often enter the market as price competitors of established retailers. If they prove successful with their lower prices, after a period of rapid expansion they will tend to seek growth in upgrading their concept: adding services, increasing quality, expanding the range. This leads to higher costs and therefore higher selling prices, which gradually erodes the newcomer’s distinguishing capacity and creates room in the market for a new price competitor.
Discounter becomes fresh supermarket
This is exactly what Aldi and Lidl have been doing throughout Europe in recent years. After a period of strong expansion, both hard discounters have now firmly established themselves. In Germany or Belgium, for example, they hardly have the opportunity to open new stores. So they are looking for growth in other areas. Both retailers opted to upgrade their store concept. The range was expanded with fresh products and A-brands. The store design got a makeover, they started with television advertising and marketing campaigns, they publish sustainability reports… And now they are also experimenting – out of necessity, one might say – with e-commerce.
They are doing this because they want to attract new customers and make occasional customers buy more. As a result, Aldi and Lidl are not really hard discounters anymore. And they say so themselves: Lidl, for example, likes to call itself a ‘smart discounter’. It is a strategy that works – both players remain successful – but as a consequence, they have started to look more and more like the average supermarket. Admittedly with low prices, a more limited range and a greater emphasis on private labels, but still: a supermarket.
Perfect timing
This is exactly why new opportunities arise at the low-end of the market. By moving towards the supermarket, the hard discounters leave room for a real ‘no frills’ concept with a basic range at absolute rock bottom prices. There have been attempts in this direction in recent years, by shrewd entrepreneurs selling overstock inventory in outlet supermarkets, but these were usually small-scale and not very professional initiatives. This is now changing: with Mere, a seasoned pro is entering the market.
The Russian discounter sees opportunities with its bare bones stores of less than 1,000 square metres in which goods are stacked on pallets or in boxes. Lesser-known brands and overstock inventory at selling prices 10 to 20 per cent lower than at Aldi and Lidl. Is there a public for this? Low prices are always a customer magnet. The timing is perfect: after the corona pandemic, a severe recession is looming. 20 per cent of the population fails to save. Many people lost their jobs. At the same time, commodity prices are rising fast, which will inevitably translate into higher supermarket prices. Price sensitivity will only increase. In that sense, Mere comes at the ideal time. The biggest challenge for the newcomer will be the speed of its expansion. The competition is watching with suspicion.
