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Discount retailers
know how to
deliver the goods
literally. Traditional
retailers can share
in discounters
success by replicating some key
elements of supply
chain efficiency.
15.8%
16.2%
16.8%
17.4%
191,521
169,768
150,730
143,295
124,802
26,018
23,573
2006
2008
2010
34,744
31,687
28,752
2012F
Sales
S
space (thousand m2)
2014F
Discount share (total %)
Focused assortment. Limiting the
number of SKUs is the best way
to maintain an efficient supply chain
and is a key feature of the discount
model. Unlike traditional supermarkets
with an average product range of 10,000
food and non-food items, or hypermarkets with as many as 50,000 items,
discounters offer between 1,000 and
3,000 products. And they provide
a reasonable assortmentespecially
in daily, fast-moving categorieswith
about 80 percent of their sales from
private labels compared with usually
less than 20 percent in traditional stores.
There are several advantages to
this strategy. Within production and
purchasing, the biggest advantages are
lower manufacturing costs due to
larger volumes, more buying power
Fresh
meat
LIDL
Fresh
poultry
p
y
1999
Fresh
milk
ALDI
1
2000
2001
Ready-toserve salad,
incontinence
products
Wellness
products
2002
B
Bio produc
products
(milk, potatoes)
Rail tickets
(Lidl Ticket)
2003
2004
Online
retail
2005
2006
Fresh
sh mea
meat,
tobacco1
Bio products
(tea, cheese,
margarine)
2007
2008
Holiday
oliday
packages
Photos, pre-paid
phone cards
(Aldi Talk)
Newspapers,
magazines
In store
bake-offs
2009
2010
2011
Online
retail
In store
bake-offs
Consistent no-frills approach.
Discounters apply their no-frills
approach throughout the entire supply
chain often against conventional
wisdom. In warehousing, for example,
the discounters approach contradicts
common practices of traditional retailers. Discounters build large distribution centers with lots of floor space
and loading bays relative to volume.
Although this ties up capital and
requires longer distances for picking,
it eliminates waiting times and the
Sales density
( per sqm)
Personnel cost
(% of sales)
Real estate cost
(% of sales)
3,670
13.7
6.5
5,030
Example: Germany
7,300
6.8
6.1
4.3
3.9
36
Inventory
turnover
13
Supermarkets
Sources: EHI Retail Institute; A.T. Kearney analysis
22
Soft discount
Hard discount
Discounters apply
their no-frills
approach throughout the entire supply
chainoften against
conventional wisdom.
Adopting Discounter
Efficiencies
Large discounters supply chains
are significantly more cost-efficient
than those of most traditional retailers,
particularly in their main markets.
A major share of this efficiency advantage is based on built-in structural differences, so it will be difficult, if not
impossible, for traditional retailers to
close the gap fully. Nevertheless, methods used by discounters to increase
supply-chain efficiency can be a source
of inspiration to traditional retailers.
In adopting discounter efficiencies, however, traditional retailers must
be careful not to blur the differences.
The best competitive strategy traditional retailers have is differentiation
and upgradingso lean supply-chain
principles should be applied in areas
that wont be obvious to customers.
Authors
Mirko Warschun is a partner in the consumer products and retail practice. Based in the Munich office, he can be reached
at mirko.warschun@atkearney.com.
Peter Schmidt is a consultant in the Munich office. He can be reached at peter.schmidt@atkearney.com.
A.T. Kearney is a global management consulting firm that uses strategic insight,
tailored solutions and a collaborative working style to help clients achieve sustainable
results. Since 1926, we have been trusted advisors on CEO-agenda issues to the
worlds leading corporations across all major industries. A.T. Kearneys offices are
located in major business centers in 38 countries.
Copyright 2011, A.T. Kearney, Inc. All rights reserved. A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. 7-11