Discount Stores take over – What can we learn from them?

Times are uncertain and the profitability of the Retail Sector and FMCG companies is under a lot of pressure. Consumers have started to prefer cheaper brands and traditionally, though no downturn is ever the same, this development has favoured the price-driven players. Instead of accepting defeat, it is high time we saw what we could learn from the thriving flock of Discount Stores.

The Business is booming for the Discount Stores 

Most consumers typically reevaluate their priorities in an economic downturn. When priorities change, many items shift in the consumer’s mind from being essentials to being treats. And since it is common for people to become more price sensitive and less loyal to brands during downturns, they are very likely to substitute their favourites with private labels or go bargain hunting trying to find them at reduced prices. Catering directly to this need are the Discount Stores, the winners of the Retail Sector 2023.

There is a wide range of Discount Stores in the Nordics these days. Some are almost like department stores with a wide product range offering something for all, some operate with a smaller and more focused offering and targeted customer base. The store concepts differ, but there are characteristics that combine most of them: price-driven communication, frequent sales and promotions, focus on private label products and operations designed to keep the costs down. While many traditional Retailers are facing rising costs and decreasing volumes, most Discount Store chains in the Nordics have managed to grow their revenue throughout the 2020s.

Uncovering 5 lessons learned from the Discount Stores

Knowit’s FMCG professionals recently went on a Retail Safari with a plan to uncover the winning formula of Discount Stores and learn more about the current trends and pain points within the FMCG business. Retail Safari, or more familiarly speaking a store visit tour, is an excellent way to dig deeper: The tour allows professionals to blend in with consumers and experience the stores with fresh eyes and gain deeper consumer insight. And that is exactly what we did! Here are our five Safari-based insights on Discount Store best practices we could all benefit from:

1. Acing the pricing game gets results. Discount Stores tempt their customers with compelling offers and prominent price-driven communication. In uncertain times, price is a powerful factor in attracting customers to your door and ultimately in purchase decisions. One tip however, it is not always only the most sizeable promotions that attract the consumer, it is offering the right price at the right time!
   
   
2. Efficiency is not a crime. Many of the Discount Stores have quite a “No Frills” approach to their business. Their supply chain and procurement, their not-so-visual presentation and their reduced customer service are all designed to support their price image and business logic. Efficiency supports the Discount Stores’ aim to cost cutting enabling their lower prices and therefore supporting the realization of their business goals. The lesson here is not only efficiency to cut costs but that by fine-tuning your operations to efficiently serve your goals, you might end up reaching your targets sooner rather than later.
   
   
3. Clear strategy and narrative help to stand out and stay afloat. Discount Stores often justify their existence by telling a story, from one angle or another, of how they are offering affordable prices for our benefit. For the consumer, it is a real sea of options out there, so it is not enough anymore for more traditional Retailers and FMCG companies to assume that consumers will love their brand just because it is available to them. The price does not have to be your angle, but successfully staying competitive requires some serious strategy and branding efforts.
   
   
4. Flexibility gets you everywhere. Traditionally the Discount Stores did not have online stores or notable social media presence and sold whatever assortment they managed to buy from their network. However, the industry has quickly adapted to the changes in their customer expectations and operating environment. Many of the successful Discount Store chains now use inventive social media campaigns to boost their sales, have excellent seasonal assortments and functional online stores that boost their omnichannel Customer Experience. The power of flexibility and embracing the change is definitely a key in winning in the FMCG business.
   
   
5. A well-planned Customer Journey in-store enhances the overall Customer Experience. Due to an often wide and varied assortment, visiting many of the Discount Stores is like going on a shopping expedition where you never know what kind of treasures you might find. The joy of finding a good bargain is supported by the floor plan, in-store communication and product placement, making it a clear strength for the Discount Stores. Planning the Customer Journey to support the best qualities of your business can be a valuable tool in finding growth and winning your customers’ loyalty. What could you highlight to stand out?
   

Are the Pricing, Strategy, Brand or Customer Experience challenges on your mind as well? Are you wondering how to stay competitive in the volatile market? Knowit’s team of experts is here to help!

We have a wide experience with Retail and FMCG companies. We are passionate about helping our customers in finding growth and boosting their profitability. Get in touch – Let’s see what we can do together!

This post is part of our blog series ShopTalk written by Knowit’s Strategy, Brand and Commercial Excellence experts. The series highlights trends, phenomena and challenges within the field of FMCG and Retail.