Thursday, 29 May 2008

Discounters appear to be winning - a warning on discounts

The news in Retail Week is that the discounters in the food sector, including Lidl and Netto, may be gaining market share from Sainsbury and Tesco as a result of changing spend patterns arising from the pressure being applied to their customers purses.

Welbeck has often mentioned warnings about discounting, which needs clarification here. Discounting where it is the basis of the business plan and the supply chain is properly managed such as is the case with models such as Lidl et al is good business, and is paying off for them currently - they will always gain edge in recessionary periods - but the important thing for small retailers who are tempted to emulate these larger players is that it is the basis for their business plan and they do manage their supply chain. SME retailers can't just offer large discounts without first considering how this is to be financed and what it is trying to achieve.

The advice from Welbeck is clear - if the margins can be retained, then discount away, if not, then ensure that the period of discounting is limited and the reason for discounting is catered for in the discounting structure.

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