Discounters: It’s Crunch Time! By Matthias Queck Research Director Planet Retail Ltd | May 2011 Discount Channel Report, 2011

2 Discounters: It’s Crunch Time! For a long time, the persistent growth of the grocery discounter channel has fascinated the industry. However, following the successful concept, some retailers are confronted with threatening consolidations. This report will distinguish between the strong and weak players within the specified channel and discuss the opportunities and challenges it is facing. All images ©Planet Retail Ltd unless otherwise stated.

3 Contents 1.Market Overview 2.Retailer Overview 3.Consolidation Ahead! A Status Report of Leading Discount Players Introducing the Defunct, the Strugglers and the Star Performers of the channel 4.Tackling the Challenges and Opportunities, 2011 Detecting challenges like commodity prices, brands and economy lines Identifying opportunities, such as co-operation, warehouse automation and regionality 5.Key Findings & Implications

4 Discount growth will be harder to achieve in future. That said, increasing acceptance, new ranges and expected inflation will provide fresh tailwind.  Globally, discounters are poised for continuous growth driven by European retailers. Saturation and price battles in home markets will make discounters search for growth abroad.  Expected food price inflation and economic recovery could help discounters back on the growth path, also relieving price pressure on competitors and suppliers.  The US variety discount store operators are the true champions in terms of outlet numbers, while the European players are the productivity experts.  Consolidation in the discount sector is imminent. Among the strugglers are Aldi Nord (!), Carrefour’s Dia and Rewe Group’s Penny.  Carrefour and Dia have always operated autonomously. The planned spin-off of Dia will unleash growth potential, but it will weaken Carrefour’s market penetration especially in Spain.  Even the star performers are expected to face challenges in the not-too-distant future: Finding growth markets beyond their home turf; fighting out price wars; fixed-price retailers making their concept sustainable. Discounters – Key Findings

5  Despite the global economic crisis, discounters have struggled to extend their reach in many markets. Improved and extended economy private label lines, as well as increased promotional activity from competitors have made life harder for the discounters.  The exceptional dependence on basic staples makes discounters more prone to ups and downs of commodity prices.  Listing more brands may generate traffic and volume for discounters - however, this is often at the cost of lower margins and direct price comparability.  Looking for new USPs, discounters emphasise exclusive brand versions, niche assortments or team up with category specialists.  After all, the long-term success of discounters in difficult markets depends on how well they manage to convey their concept idiosyncrasies as a benefit for shoppers. Discount growth will now, more than ever, depend on how well retailers communicate their concept idiosyncrasies to shoppers. Discounters – Key Findings