1

Modelling the Future Opportunities for Deep

Discount Food Retailing in Great Britain
Working Paper

Chris Thompson, Graham Clarke, Martin Clarke, John Stillwell

Version 1.0
October 2010

This Working Paper is an online publication and may be revised

School of Geography
University of Leeds
Leeds
LS2 9JT
United Kingdom

Abstract
In the last few years the discount retail food market in Great Britain (GB) has grown to record levels. This followed a period
of gradual increase in store numbers and also more favourable trading characteristics for discounters given the recession and
global financial problem of the late 2000s. Although market share has dipped a little in recent months the deep discounters
still have impressive growth plans for their GB store networks. The aim of this paper is to look at where discount retailers
could expand in the future. First we plot the growth of the discounters in GB and use Acxiom Research Poll (ROP) survey
data to attach a geodemographic label to the different food retail brands. This will allow us to profile the types of customers
using discount retailers as their primary food destination. We profile the different customer bases in Yorkshire and Humber
and London, two very different regions for discount retail market share. This includes looking at the potential expansion
into middle Britain, moving the focus from deep discounting to serving more middle markets (a potential change in the
value-platform growth strategies which companies such as Aldi and Netto now seem to be championing). Following an
evaluation of the potential sites using geodemographics, we design and implement a disaggregated set of retail location
models which will evaluate the impacts of these new stores in more detail, especially in relation to potential revenues and
market shares.
KEYWORDS: Deep discounters; geodemographics; growth; spatial analysis;

1. Introduction
The deep discount retailers from Germany and Scandinavia arrived in Great Britain (GB) in the early
1990s. They were enticed into GB by the high profit margins enjoyed by British food retailers at the
time and their recognition of a gap in the market a value gap in terms of price, and a spatial gap in
terms of the most deprived areas of British towns and cities (Wrigley and Clarke, 1998). As Tesco,
Safeway and Sainsburys largely concentrated on servicing the more affluent middle class, the
discounters went head-to-head with the food retailers of northern England, especially Morrisons, Kwik
Save, the then Gateway, Asda and the Co-op. Although growth stalled somewhat in the late 1990s, the
discounters did expand outwards from these initial heartlands, and the 2000s have witnessed a
significant increase in the number of stores owned by the three main players: Aldi, Netto and Lidl. The
competition during this period was too hot for certain incumbent players, most notably Kwik Save
which was finally sold off in 2006.
By 2008, the discount retail food market in GB had grown to record levels. This followed a period of
gradual increase in store numbers and also more favourable trading characteristics for discounters,
given the recession and global financial problems between 2007 and 2009 (Thompson et al., 2010b).
Having reached record sales, fortunes have dipped somewhat for the three discounters between 2009
and 2010 as the other food retailers have fought back, principally on price. Some commentators have
suggested that this dip in fortune was enough to convince one player to bail out Netto being sold to
Asda in 2010 for 778million. However, the other two discount players continue to look to GB for
major expansion. Aldis plans for future expansion are extraordinary their stated ambition is to have
1,500 stores across the UK (Hickman, 2008), a considerable increase in their present portfolio of 467
stores.
The aim of this paper is to look ahead and identify potential locations in GB for new sites for the
discount retailers, especially if they are to hit the expectation of growth mentioned above. A history of
the discount sector in GB is presented in section 2 by way of context. In section 3, we use Acxioms
Research Opinion Poll survey data (Thompson et al., 2010a) to examine the customer base of the

discount retailers and profile those customers against the Office of National Statistics (ONS)
geodemographic classification (Vickers et al., 2007). In Yorkshire and Humber, we see a customer
segmentation based on households in which substantial proportions are classified as Constrained by
Circumstances and Blue Collar Communities. In London, we additionally see the importance of the
geodemographic group Multicultural. In section 4 of the paper, we use the findings from the
geodemographic profiles to search for new locations for the deep discounter Aldi the company whose
aggressive expansion plans have been mentioned above. First, we examine opportunities still available
in the traditional low income market of Yorkshire and Humber where the discounters already have a
relatively high market share are there still concentrations of low-income customers not served by
Aldi and the other discounters? We will also look at potential expansion into middle Britain, moving
the focus from deep discounting to serving more middle markets (a potential change in the valueplatform growth strategies) which companies such as Aldi and Lidl now seem to be championing
(Hickman, 2008), and observed in a rising number of customers from the Countryside
geodemographic category. Second, we will examine opportunities in London, an area which is not as
well-served currently by discount retailers. Even though London continues to prosper in comparison to
the north, we will explore areas which could also be potentially fertile ground for Aldi. In section 5, the
analysis will include the design and implementation of a set of disaggregated retail location models.
These models will allow us to test if the locations suggested by the geodemographic analysis are likely
to produce revenues acceptable for new store development.

2. A history of the discount food sector in GB

Wrigley (1994) documents a series of external shocks in the food retail sector in the late 1980s and
early 1990s, which had profound impacts on the speed of growth of the major players. Having enjoyed
a golden era of rapid, largely out-of-town growth (Wrigley, 1987), the major players were faced with
a number of threats, or new and difficult trading circumstances. First was the threat of saturation, a
theory espoused by academics and business executives alike (e.g. Duke, 1993). Although Langston et
al. (1997; 1998) and Guy (1998) challenged the notion of saturation; it appeared to be a common
perception in the food retail world. Second, new GB tightened planning legislation in 1996 seemed to
make out-of-town sites harder to acquire (revised PPG6). Third, was the depreciation of assets forced
by City accountants who argued that retail land had become overpriced in relation to other land uses
and hence firms were not worth the amounts seen on company balance sheets (Wrigley, 1994; 1998).
Another key problem to hit the major players came with the arrival of the deep discount food retailers
from Germany and Scandinavia. Although constantly denying that they would be serious competitive
rivals, the big players were eventually forced into action as the deep discounters stores grew in
number. Locating first in areas of major urban deprivation, the deep discounters soon gained
considerable market share in the North (of England) and the West Midlands. All the main players
reacted by discounting prices on main items and there is some evidence of bullying tactics to stop
manufacturers supplying the new discounters (and hence a lot of products, many unfamiliar brands to
British consumers, had to be sourced from Continental Europe). For Asda, Gateway (later Somerfield)
and the Co-op, the competition was so fierce in northern towns and cities that they experimented with

new fascias (Pioneer for the Co-op, Food Giant for Gateway and Dales Discount for Asda), in order to
offer a deep discount format in retaliation. The impact of the deep discounters was perhaps felt most
keenly by the main British incumbent discount retailer in these areas Kwik Save. After its own
golden period in the 1980s, Kwik Saves growth slowed down in the late 1990s and it merged with
Somerfield in 1996. However, the merger was not sufficient to save the company. On 27th February
2006, Somerfield sold the Kwik Save brand and 171 stores to private equity company BTTF. More
details on the arrival and diffusion of the deep discounters in this period can be found in Burt and
Sparks (1994; 1995) and Wrigley and Clarke (1998).
Against this backcloth of growth for the discounters, Wrigley and Clarke (1998) undertook an analysis
of socio-economic class to identify potential new sites outside their heartland regions in the north and
midlands. Many of these sites have actually since been chosen as Aldi, Lidl and Netto all made
substantial additions to their portfolios of stores throughout the 2000s. Figure 1 shows the growth in
their store networks between 2003 and the present day (2010). Aldi clearly moved out in all directions
from their heartland with new stores in the South East, Wales and Scotland. Lidl opted to move
towards a blanket coverage of GB whilst Netto was perhaps more cautious, not straying too far from its
initial northern base (with the exception of London). Whilst the overall growth in supply of discount
stores has been impressive, some planned strategies did not come to fruition. For example, Nettos
highly publicised 200million investment in 70 new sites in South Wales never materialised.

(a) All discounters

(b) Netto

(c) Lidl

(d) Aldi

Figure 1. Discounter store expansions from 2003 to 2010 across GB (Sources: GMAP 2003, 2010).

By the mid-late 2000s there was much optimism in the discount market that future GB growth would
be strong in this sector. Between 2007 and 2010, this optimism seemed well placed and indeed was
heightened by the onset of recession in the United Kingdom (UK). Similar to the recession in the
1990s, which gave the discounters their initial platform for growth (Burt and Sparks, 1994), the more
recent recession caused households to switch to the discounters in large numbers. Aldi, Lidl and Netto
saw their combined market share rise to 6.1%, their highest ever in the UK (Aldi 3.0%, Lidl 2.4% and
Netto 0.7%). Thompson et al. (2010b) discuss this consumer switch in patronage in more detail,
referring in particular to the growth of customers shopping at discounters from the higher income
groups. Originally, it was believed that the recession was the cause for higher earners reverting to shop
at low price retailers. However, the evidence would suggest that the trend was already occurring before
2007 and the recession merely accelerated this trend as households of all types began to seek out low
cost. Since the beginning of 2009, however, it seems that the fortunes of the deep discounters have
turned once again. So much so, that in 2009 Aldi reported a loss of 54 million on its UK business,
Lidl reported a fall of 38% in profits and Netto sold its assets to Asda for 778million. The rise in
market share for the deep discounters was followed by aggressive fight-backs by the big four. The
introduction of new low-cost ranges from the bigger retailers meant that the discounters were no longer
seen to be quite so cheap and competitive. Furthermore, as the recession progressed and unemployment
across the country increased, consumers shifted their purchasing behaviour from eating in restaurants

and drinking in pubs to spending more on high quality grocery ranges offered by the likes of
Sainsburys, Waitrose and Marks and Spencer (Mitchell, 2009) encouraged by attractive meal deals.
This trend has only accelerated since the UK economy emerged from the recession as shoppers
continue to trade up. Edward Garner, Communications Director for Kantar Worldpanel, explains as
we emerge from the grip of the recession, quality is back on the agenda (Kantar Worldpanel, 2010b).
The latest figures for the 12 weeks leading to the 3rd October 2010 indicate that Tescos market share
remains unchanged at 30.8% whilst Morrisons and Sainsburys have both grown by 6.1% and 4.4%
respectively (Kantar Worldpanel, 2010a). Conversely, Asda continues to underperform with its market
share back down to a level not seen since November 2008. Waitrose continues to see a remarkably
consistent share growth from a low point of 3.6% in November 2008 to a current 4.2% (Kantar
Worldpanel, 2010a; Kanatar Worldpanel, 2010b). Faced with this difficult period, it might be
anticipated that Aldi and Lidl would perhaps retreat and scale-back their UK operations. However,
despite its reported losses, Aldi opened 50 new sites in 2009 and held planning permission on a further
29 sites at the start of 2010 (The Grocer 2010). The company also increased its market share value
from 2.3% earlier in the year to 3%, equalling the share which it achieved during the peak of the
recession in 2009. Additionally, Lidl held 22 sites with planning permission for new stores at the start
of 2010 (The Grocer, 2010). Thus it seems that growth in GB remains very much on the agenda.
Indeed, the Grocer (2010) also quotes Netto MD Charles Kay (still in charge of its UK business) as
saying Discounters do best when they have lots of stores close by one another. There is lots of scope
for them to grow.

3. Exploring the geodemographics of discount retailing

Figure 2 exemplifies the current portfolio of stores across GB for Aldi, Lidl and Netto combined with
the percentage of households in each Local Authority District (LAD) which use each of the discounters
for their main grocery shop. Clearly there are still gaps in market share across the country. The big
question remains as to whether the gaps are in areas where the discounters already have a strong market
share, or will they need to venture out into pastures new? This is an important question as the two
remaining deep discounters certainly have impressive plans for expansion. In July 2009, all the main
GB newspapers reported that Aldi, for example, laid out plans to triple its GB store network from 467
to 1,500 (Hickman, 2008; Mail Online, 2008). If they could successfully accomplish this, their market
share would increase to 10%. Therefore, in the rest of the paper we attempt a new geodemographic
analysis of existing discount customers as a way to identify potential locations for new Aldi stores in
two case-study regions. The first is Yorkshire and Humber, an area where the discounters have a long
standing history of trading and already have a strong market presence. The second is London, a region
unlike any other in the country and a catchment where the discounters have very poor market share
levels, despite a significant network of stores (Figure 2). Furthermore, it has also been identified by
Aldi as a key part of their store expansion program, described even as a gold mine by Graham
Hetherington the companys director for London and the South-East (Mai Online, 2009). Together,
each of these regions will provide contrasting examples for the potential expansion of Aldi stores
within GB.

Figure 2. The location of the discounters in Great Britain, 2010 (Sources: Acxiom 2009, GMAP 2010).

Through using a combination of Acxioms annual Research Opinion Poll (ROP) household-level data
and the ONS geodemograhpic Output Area (OA) classification developed by Vickers et al. (2007), we
are able to provide a breakdown of each of the major retailers customer base in both regions.
Acxioms ROP was used on account it gathers detailed and up-to-date information on consumer
spending habits, preferences, socio-demographic information and the respondents geographic location.
The combination of these different pieces of information allows for detailed insights into the spending

patterns of different types of people and geographic areas. Moreover, with the survey being
distributed annually and including questions not asked on other public sector surveys, it also provides a
unique source of time-series data on the demographic and socioeconomic characteristics of people and
households across GB (Thompson et al., 2010a). In conjunction, geodemographics has a long history of
application in the business world (Birkin and Clarke 2009) and provides a useful tool for profiling the
target audience for retailers. It has been argued to be...a shorthand label for both the development and
application of area typologies that have proved to be powerful discriminators of consumer behaviour
and aids to market analysis (Brown 1991, p.221).
3.1 Yorkshire and Humber
As stated, for the discounters, the Yorkshire and Humber region is an area where they achieve some of
their highest markets shares. Netto in particular has a long history in the region having opened its first
British store in Leeds in 1990. Since then, Figure 1 highlights how all three deep discounters have
targeted the area as one of their main locations for expansion. The main competition in the area is from
Morrisons and Asda; two Yorkshire based firms that dominate the local market (Thompson et al.,
2010b). However, the rapid expansion of the convenience store format by Sainsburys and Tesco has
caused a steady decline in market share over the past four years for Morrisons in particular.
Additionally, the recent recession caused considerable switching behaviour from the big four to some
of the discounters, especially Aldi, Lidl and the frozen food retailer Iceland (Thompson et al., 2010b).
Figure 3 presents the geodemographic profiles for each of the main retailers in operation within
Yorkshire and Humber for 2010. Kwik Save has also been included to offer a comparison with the old
British discounter which was sold off in 2006. It was argued in the 1990s by Wrigley and Clarke
(1998) that the main customers for the discounters were those in the D and E socio-economic
categories (the Jictnar classification commonly used in marketing, with households or persons labelled
A-E, with A affluent professional workers and E unskilled manual workers) . However, it would appear
from Figure 3 that the individual discounters have more complex customer profiles. For example, for
those customers which shop at Aldi, the majority fall within the Typical Traits (24.3%) and
surprisingly the Prospering Suburbs (20.6%) categories. The rise in customers from the Prospering
Suburbs groups is largely a result of the increase in higher earners reverting to shopping at discounters
since 2004 (Hickman, 2008; Thompson et al., 2010b). Lidls target audience is not too dissimilar;
however, Iceland, Kwik Save and Netto are distinctly served by customers living in areas termed Blue
Collar Communities and Constrained by Circumstances (closest to the D and E Jictnar
classifications). In the early 2000s, Aldi too had a strong Blue Collar Communities following, but
over the past six years this has been consistently declining (Thompson et al., 2010b).
In comparison, Asda and Morrisons, the two dominant retailers in the area have quite a varied customer
base. It could be argued that this is a result of their longstanding presence in the region which has
gained them a strong sense of brand loyalty across all areas in Yorkshire and Humber. The Co-op and
Tesco also have a reasonably varied customer base; however, they have strongest backing from the
Countryside group. A possible explanation is the existence of many Co-ops in rural market towns and
the large Tesco superstores located in out-of town sites (Wrigley, 1994). Unsurprisingly the
households which shop at Sainsburys, Marks and Spencer and Waitrose are overwhelmingly from the

Prospering Suburbs group. Moreover, Waitrose in particular also has quite a prominent proportion of
shoppers from the City Living (11.9%) classification.

(a) ALDI, 2010

(b) ASDA, 2010

(c) CO-OP, 2010

(e) Iceland, 2010

(f) LIDL, 2010

(g) M&S, 2010

(i) Netto, 2010

(j) Sainsburys, 2010

(k) Tesco, 2010

(d) Kwik Save, 2007

(h) Morrisons, 2010

(l) Waitrose, 2010

Figure 3. Geo-demographic profiles of the main grocery retailers in Yorkshire and Humber (Sources:
Acxiom ROP, 2007, 2010; ONS, 2003)

Figure 3 helps provide a useful insight into the customer profile for the various retailers, although the
profiles do not factor in the base population for the region. For instance, due to the small number of
households living in Multicultural areas and the large percentage in Blue Collar Communities, it is
difficult to identify which retailers are primarily catering to these groups. We attempt to rectify this
problem by dividing the OAC percentages of each retailer by the percentages recorded in the base
population (ROP sample). In doing so, we establish whether a selected retailer has a below or above
average number of customers in a specific group compared to the percentage in the regions population.
It is worth noting, however, that the figures do not reflect the market share each company has of a
particular group, we simply aim to emphasise each retailers primary consumer. Figure 4 displays the
results from this method, with only those values above the regional average shown (above 100). From

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Aldis point of view, the high percentage of Prospering Suburbs group is no longer recognised as a
one of their main consumers. What appeared to be a large percentage in Figure 3 was actually a
reflection of the great number of households which live in Prospering Suburbs. Instead, Aldi appears
to have an above average number of customers from the Countryside, Constrained by
Circumstances and Typical Traits groups. Those consumers living in the Countryside have not
always been one of their core consumers; however their numbers have been growing steadily since the
company has expanded into rural market towns (Thompson et al., 2010b). Similarly, Lidl also has a
considerable number of Countryside consumers. However, in the same way as Netto, Lidl attracts a
large proportion of households from the Multicultural areas. Figure 4 also shows the extent to which
Marks and Spencer and Waitrose (and Sainsburys to a lesser extent) are dominant amongst the City
Living communities.

Figure 4. Geo-demographic profiles of the main grocery retailers constrained by the base population of
Yorkshire and Humber (Sources: Acxiom ROP, 2007, 2010; ONS, 2003).

3.2. London
Based on the locations plotted in Figure 2, London was identified as a region where the limited line
discounters have a very low market share (below 2%). Sainsburys and Tesco are the dominant force in
the market whilst Asda and Morrisons have a considerably smaller market share (Birkin, Clarke and
Clarke, 2002; Thompson et al., 2010b). Figure 5 shows for each retailer, the percentage of households
which live in each of the seven OA classifications. It is immediately clear that the retailers have a
somewhat different customer base to counterpart stores located in Yorkshire and Humber. London is
heavily dominated by people living in Multicultural areas and hugely underrepresented by the
Countryside group. In 2001, London was home to over two thirds of Britains Black population,
nearly 42% of the Indian population and one third of both the Pakistani and Other South Asian and
Chinese populations (Stillwell, 2010). Understandably, the proportion of households living in the City

11

Living group is also much greater than in Yorkshire and Humber. The large differences between
Figure 3 and Figure 5 strengthen the argument that store location strategy is a complicated process and
regional differences in consumer demand are of paramount importance (Birkin, Clarke and Clarke,
2002). The Multicultural classification aside, the grocery retailers still have quite defined target
audiences. More specifically, similar to the Yorkshire and Humber stores, the majority of Aldis
customers are from the Typical Traits, Prospering Suburbs and Constrained by Circumstances
areas. In contrast, out of those households shopping at Lidl, Netto and Iceland, the majority come from
the Multicultural (more so than anywhere else) and Typical Traits segmentations. Moving onto the
big four, Asda and Morrisons both appear to be targeting the Blue Collar Communities whereas
Sainsburys and Tesco attract a greater proportion of people from the City Living and Prospering
Suburbs groups. Conversely, it would appear that Marks and Spencer and Waitrose struggle in
Multicultural parts of the region and are specifically locating in the more central City Living areas.
In fact, Waitrose is the only retailer not to have the Multicultural group as its principal consumer.

(a) ALDI, 2010

(e) Iceland, 2010

(i) Netto, 2010

(b) ASDA, 2010

(f) LIDL, 2010

(j) Sainsburys, 2010

(c) CO-OP, 2010

(g) M&S, 2010

(k) Tesco, 2010

(d) Kwik Save, 2007

(h) Morrisons, 2010

(l) Waitrose, 2010

Figure 5. Geo-demographic profiles of the main grocery retailers in London (Sources: Acxiom ROP, 2007,
2010)

12

In exactly the same way as Figure 4 was calculated for the Yorkshire and Humber area, Figure 6
represents the proportions in Figure 5 divided through the proportions for the London sample
population. As the London region is dominated by the Multicultural group, Figure 6 provides a useful
way of picking out which groups the retailers are actually attracting to the their stores. For the
discounters, Figure 6 shows that the types of customers shopping at Aldi, (Constrained by
Circumstances), Netto (Blue Collar Communities) and Lidl (Multicultural) are in fact similar to
those in Yorkshire and Humber. Additionally, Figure 6 counteracts what appeared to be a large
percentage of Prospering Suburbs households shopping at Aldi in Figure 5. The graph shows that
proportions are in fact considerably lower than those for the London region as a whole. Similar to
Yorkshire and Humber, Asda and Morrisons do well in the Blue Collar Communities areas, whereas
Sainsburys and Tesco have a greater following from the Prospering Suburbs and Typical Traits
groups respectively. Finally, Figure 6 also reflects the importance of the City Living consumers for
both Waitrose and Marks and Spencer in London, as in Yorkshire and Humber. However, what is not
picked up in Figure 5, due to the small numbers, is the importance of the Countryside areas for
Waitrose.

Figure 6. Geo-demographic profiles of the main grocery retailers constrained by the base population of
London (Sources: Acxiom ROP, 2007, 2010; ONS, 2003).

4. Opportunities for growth

By using the information produced from the geodemographic analysis, we are able to start selecting
prospective sites for new Aldi stores in each of the two case study regions. The approach used is

13

similar to that used by Wrigley and Clarke (1998), although by using geodemographic area types
instead of socio-economic groups we attempt to pick up a wider potential consumer base than simply
the D and E Jictnar socio-economic groups. Figure 7 represents the percentage of households in each
postal sector for the selected target audiences in each region. To do this we initially attached OA codes
to the Acxioms household level data (complete postcode) so that the OAC classifications could be
identified for all households. Then, we simply aggregated the number of households in each
classification up to post sector level using the postcodes and converted the values into percentages. The
locations of the current discount stores are also displayed to help find potential gaps for new
supermarkets. To ensure the identification of realistic sites, only those postal sectors with a minimum
population of 5,000 people were used in the analysis for Yorkshire and Humber and 7,000 people per
postal sector for London. This minimum threshold was more important for Yorkshire and Humber, as a
number of the more rural postal sectors in North Yorkshire have very small population counts.
Additionally, a higher minimum number was selected for London because the average population in
each postal sector is much higher. Furthermore, in densely populated areas such as London, people are
less likely to travel as far for grocery shopping (Birkin, Clarke and Clarke, 2002).
4.1 Yorkshire and Humber
As shown in section 3.1, Aldis customer base in the traditional low-income market of Yorkshire and
Humber is quite varied. This makes it somewhat difficult to select one particular group as a target
audience for further expansion. One could argue that Figure 4 illustrates the importance of the
Constrained by Circumstances group for Aldi; however, since the early 2000s these customers have
been declining due to the steady rise of the slightly more affluent Typical Traits and more recently the
Countryside customers (Thompson et al., 2010b). As this trend appears to be cyclical rather than a
reaction to the recession, it was decided that both the Typical Traits and Countryside classifications
would best serve any new Aldi supermarkets. In the context of future expansion, it is important that
Aldi locate in areas which best represent the companys current and future target audience.
Figure 7(a) demonstrates the percentage of households in each postal sector termed Typical Traits.
As stated, this group has arguably become Aldis primary consumer market so will become a key
demographic if Aldi is to achieve the targets in its ambitious expansion scheme. Figure 7(a) illustrates
the spatial pattern of this group, highlighting that the majority of these customers are situated in the
central parts of the regions large cities (Leeds, Bradford, Hull and Sheffield). Based on the current
distribution of Aldis stores, it would appear that the Typical Traits customers are relatively well
served. Nonetheless, there are still a number of postal sectors in Leeds, Wakefield and, surprisingly,
central Harrogate, that do not contain an Aldi store and yet still have high numbers of households in the
Typical Traits classification. In conjunction, Figure 7(b) exemplifies the percentage of households
which fall in the Countryside category. As one would expect, the Countryside map displays a
completely different spatial pattern to Figure 7(a). This is a result of the largely rural parts of North
Yorkshire and the tourist towns along the east coast. Unlike the other discounters, Aldi have a number
of stores along the east coast in towns such as Scarborough, Whitby and Hull, and the odd store in
market towns such as Selby. Netto and Lidl have steered clear of these zones, preferring instead to
locate in the inner-city areas of South Yorkshire and Hull.

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(a) Typical Traits in Yorkshire and Humber

(c) Typical Traits in London

(b) Countryside in Yorkshire and Humber

(d) Constrained by Circumstances in London

Figure 7. Geodemographics by postal sector for Yorkshire and Humber and London in relation to the location of discount stores (Source: ONS,
2003; GMAP, 2010; Acxiom 2010)

15

Taking all of this into consideration, we suggest a collection of potential sites across the Yorkshire and
Humber region for the two separate store location strategies (low-income and middle-income). First of
all, Table 1 highlights those post sectors currently not being served by an Aldi store which also have an
above average percentage of households with Constrained by Circumstances and Typical Traits
(low-income). The post sectors are sorted in descending order by the total number of households in
both of the defined groups. This allows us to indentify which post sectors would have the greatest
demand for a new Aldi supermarket. As these areas represent the conventional Aldi customer base over
the last 5 years, it is expected that they would offer great potential for a new store. In addition, Table 2
exemplifies those post sectors in the region with an above average percentage of Typical Traits and
Countryside households (middle-income). This store location strategy is aimed at targeting the
growing number of Aldi customers in the Countryside group. As with Table 1, the post sectors are
listed in order from high to low based on the total number of potential customers. We recommend the
location of a new Aldi in any of these new sites; however for the purpose of this study we will consider
one from Table 1 in post sector LS13 3 (low-income strategy) and one from Table 2 in LS15 8 (middleincome strategy).
Table 1. Potential post sectors for a new Aldi store based on traditional Constrained by Circumstances
and Typical Traits customers.
Post
Sector
S6 4
HU13 9
LS13 3
LS29 8
HG1 2
DN5 8
LS13 1
BD4 6
WF9 1
HD9 6

Location
Barnsley
Hull
Leeds
Leeds
Harrogate
Doncaster
Leeds
Bradford
Wakefield
Kirklees

Population
13753
7553
7653
7354
7124
10411
6792
5323
6819
6132

Households
5907
3249
3364
3321
3195
4397
2944
2274
2880
2697

Constrained by
Circumstances (% HHs)
17.4
14.9
33.5
21.4
13.1
16.3
24.3
27.2
13.0
15.1

Typical Traits
(% HHs)
44.2
70.9
41.8
39.8
47.5
25.3
34.6
41.3
30.4
30.2

CC + TT
Households
3633
2788
2534
2033
1938
1830
1733
1557
1252
1220

Table 2. Potential post sectors for a new Aldi store based on customers from Typical Traits and
Countryside customers.
Post
Sector
YO15 3
YO14 9
LS15 8
BD16 1
HU17 0
HD8 0
WF3 3
WF9 1
LS25 1
S36 6

Location
York
Scarborough
Leeds
Bradford
Hull
Kirklees
Wakefield
Wakefield
Leeds
Barnsley

Population
5869
5861
9435
8202
9010
10220
8341
6819
7659
5805

Households
2802
3353
4132
3642
4210
3945
3385
2880
3304
2526

Countryside
(% HHs)
22.9
32.7
5.1
8.2
6.5
8.0
10.3
16.5
5.1
6.5

Typical Traits
(% HHs)
59.3
32.7
41.3
39.0
33.7
34.9
35.7
30.4
34.5
32.4

C + TT
Households
2303
2195
1917
1718
1694
1691
1558
1352
1307
981

16

4.2 London
London represents an area where the discounters have a good supply of stores, however their market
share figures still remain relatively low compared to other areas in GB (Figure 2). One may argue that
this is an indication of the high rental costs for retail space across the city. The standard model for a
discount store is one with low operational costs built on relatively cheap land (Colla, 2003). Therefore,
it is feasible that high rent prices could be eating into the deep discounters profits, whilst the bigger
companies such as Tesco and Sainsburys can afford to take on these additional costs. Nevertheless,
coupled with the increased cost of land is the potentially high level of revenue available for retailers in
London. More specifically, the population density and average household income in London are much
greater than the other regions across the country. Therefore, whilst it might seem that the discounters
have a large number of stores, in actual fact; London may offer huge potential for future growth (Mail
Online, 2008).
Figure 7(c) and (d) highlight the network of discount stores across the London region. Out of the three
deep discounters, Lidl are currently the most dominant in terms of the quantity of stores. Their
coverage of the region is much like their national expansion strategy (Figure 1), for the company have
gone with blanket coverage across the entire city. Conversely, Netto, who only ventured into London
post 2003, have located their limited number of stores within the boundary of Inner London. This
strategy is the complete opposite of Aldi, who have actually restricted their stores to Outer London. In
terms of the opportunities for growth, this provides Aldi with a number of options for future locations.
In section 3.2, it was argued that Aldis primary consumers are living in areas described as Typical
Traits and Constrained by Circumstances. If we look at the distribution of these groups in Figure 7(c)
and (d) we can see that Aldis stores are persistently located in and around post sectors where these two
groups are prominent. Nevertheless, there are still a number of localities across the region, especially
south London where Aldi have no presence.
Therefore, as we have done in Yorkshire and Humber, we recommend the construction of two Aldi
stores in London. Table 3 exemplifies ten favourable post sectors across the region based on the
information given in Figure 7 (a) and (b). The post sectors listed have an above average number of
households living in both the Constrained by Circumstances and Typical Traits classifications.
Utilising the data in Table 3, we advocate, the location of a new store first of all in post sector SM5 1,
Sutton. Sutton represents the archetypal outer London site for an Aldi store as it has a high percentage
of households in both the Typical Traits and Constrained by Circumstances group. Furthermore,
Aldi currently only have one store in the surrounding area which means there is significant potential for
growth. The second site is in SE9 1, Greenwich. Again, this area has high levels of their core
consumer; however as Greenwich is closer to the city centre, if provides Aldi with the prospect of
establishing the company brand in the more central parts of the city.

17

Table 3. Potential post sectors for a new Aldi store based on customers from Typical Traits and
Constrained by Circumstances customers in London.
Post
Sector
RM12 4
SE9 1
E4 6
SM6 8
DA7 6
RM7 0
RM5 3
RM5 3
SE9 3
SM5 1

Location
Havering
Greenwich
Waltham Forest
Sutton
Bexley
Havering
Havering
Havering
Greenwich
Sutton

Population
15349
11127
15042
11152
11232
10240
10038
10038
12082
12175

Households
6298
4754
6653
4820
4653
4156
4061
4061
5092
5047

Constrained by
Circumstances (%HHs)
18.02
16.10
14.96
11.05
19.44
13.48
27.92
27.92
38.38
33.62

Typical Traits
(%HHs)
58.56
58.05
29.91
43.68
42.78
66.67
52.60
52.60
19.70
3.40

CC + TT
Households
9322
6423
5652
4533
4488
4467
4423
4423
3940
2100

5. Predicting Revenues and market shares

Spatial interaction modelling has a long history of application in the context of retail systems and
consumer behaviour Such models are geographical because of their emphasis on the spatial
distribution of shopping trips as well as associated levels of sales, expenditures and incomes. The
central problem in all retailing studies involves describing the allocation of a person's expenditure
between competing stores or determining how much of a store's turnover derives from people who live
in a certain catchment area. It was shown by Wilson (1967) that Newtons gravity model could be
formulated using entropy maximising techniques and that the so-called shopping model was one
variant of a family of spatial interaction models that could be formulated, based on the constraints on
known information available to the modeller (Wilson, 1971). Wilson envisaged a system of residential
zones (origins) with populations having certain disposable incomes that would be spent on retail goods
in shopping centres (destinations) whose attractiveness would be determined by factors such as their
size (floor space) and range of goods. In addition to the origin and destination terms, a distance
function is required to capture the frictional effect of distance on shopping trips. The shopping model
therefore estimates the flow of cash that is exchanged for retail goods between residential areas and
shopping centres, recognising that the pattern of flows (meso state) is the aggregation of a large number
of individual trips (micro states). Moreover, the shopping model also includes a macro state constraint
insofar as the total revenue that arrives at each of the shopping centres in the retail system from origin i
should be the same as the total expenditure available in origin i, where i is one of n origin areas. This is
equivalent to imposing a constraint at the production end of the flows in the system and hence shopping
models are referred to as production-constrained models.
A pedagogic guide to the theory and applications of singly constrained shopping models is provided by
Openshaw (1975) and models of this genre have been developed, enhanced and used by a number of
researchers since then including Pankhurst and Roe (1978), Birkin et al. (1996; 2002, 2010), Clarke
and Clarke (2001), and Clarke et al. (2002). There is no doubt that retail conditions in the real world

18

present a number of important challenges for shopping models. Birkin et al. (2002, 2004, 2010) have
shown that in certain cases, the existing models are robust enough to deal with these challenges,
whereas in other cases, it becomes necessary to refine the models in order to capture more complex
types of consumer behaviour. In the context of the present paper, we want to use a classic singly
constrained shopping model framework to estimate the flows of expenditure between residential areas
and destination stores in each of our two systems of interest: Yorkshire and Humber and London. The
model equation, following Clarke et al. (2002) is as follows:

Sijm Oim AimW j exp( m d ij )

m

where:

S ijm

= expenditure by household type m in residence zone i at destination j

Oim = level of consumer expenditure of household type m in residence zone i

Aim = a balancing factor to ensure that:

j Sijm Oim
which is calculated as:

Aim

Wj

m
d ij

j W j

exp( m d ij )

= the attractiveness of destination j

= a parameter reflecting the perception of a destinations attractiveness
by household type m
= the distance between origin i and destination j

m = the distance decay parameter for household type m

The interaction system for a retail model is comprised of three elements; demand, supply and interaction. The
demand side is calculated as follows:

Oim e m H im
where:

em

= the average weekly grocery expenditure by household type m,

calculated from the Expenditure and Food Survey

H im = the number of households of type m in residence zone i, from the 2001

Census of Population (updated using data supplied by GMAP Ltd.)

To ensure that the estimations produced by the spatial interaction model represent real expenditure
flows, the model was calibrated using actual data from the 2010 ROP. The survey records the
interaction between each household and the name and location of the food retail store which it uses.
This then enables us to calculate an accurate value for the distance decay effect of travelling to a
grocery store. Once calibrated, the model was then processed twice for each of the four locations. The
first run of the model estimated existing market share values for each of the retailers. On assessing the
distribution of revenue in each area, we then added four 8000 sqaure feet store to the model. The model

19

was then run once more to calculate the performance of each supermarket and the overall effect they
had on market share.
5.1. Growth in Yorkshire and Humber
We first consider the performance of a new Aldi store in post sector LS13 3, Bramley, Leeds. The key
geodemographic statistics of this postcode indicate 41% of households are classified as Typical Traits
and 33% as Constrained by Circumstances (Table 1) Table 4 illustrates the performance of the
different retailers in Bramley both before and after the introduction of the new Aldi store. Currently,
Aldi have four stores in the vicinity which bring in an estimated market share of 1.98%, some 1%
lower than its national average of 3%. Netto are the strongest deep discounter with a 3% share, whilst
Morrisons and Asda dominate the market with shares of 26.87% and 25% respectively. Nonetheless,
Figure 8 (a) shows how despite the fact Aldi already have a reasonable presence in this area, there is
still adequate room for the introduction of at least one store. This is evidenced by the second set of
results in Table 1 and the new market share map in Figure 8 (b). It is clear to see from Figure 8 (b) that
the opening of a store in LS13 3 fills the gap previously not served in Figure 8 (a). The weekly revenue
of the new store is estimated to be 234,191, which would increase the overall market share in the
designated area up to around 2.7%. This is a sizeable uplift, considering the new store is only 8,000
square feet in size. Moreover, at 29.27 sales per square foot, it would be Aldis top performing store
and 15th out of all the areas stores.

Table 4. Market share figures for the proposed Aldi store in Bramley, Bradford
Retailer
Aldi
Asda
Lidl
Co-op
Somerfield
M&S
Morrisons
Netto
Others
Sainsburys
Tesco
Grand Total

Market Share (%)

1.98
25.03
0.94
13.39
1.09
1.01
26.87
3.07
4.80
16.34
5.50
100

Weekly Revenue ()
647934
8190699
307442
4379396
354994
329047
8791513
1002836
1569491
5345992
1798280
32717624

New Market Share (%)

2.68
24.85
0.93
13.28
1.07
0.99
26.67
3.04
4.76
16.22
5.45
100

New Weekly Revenue ()

877572
8131325
305571
4346777
352567
326697
8729052
995553
1558183
5309038
1785284
32717624

20

Next, we examine the success of a store opening in postcode LS15 8, Halton, Leeds. Once more, this
postcode is characterised by a high percentage of Aldis primary customers. However, compared to
LS13 3, this area is far more rural. Therefore, it offers the potential for Aldi to target their increasing
number of consumers which reside from the Countryside group. Prior to the new store, the market
share figures in Table 4 show that Aldi are doing relatively well. The companys market share is higher
than it was in Bramley at 2.3%, but Netto still remain the dominant discounter with 2.9% (Table 5).
Spatially, Aldis highest market share figures are contained to the south of the region in Castleford and
Pontefract, leaving a section of the population not served towards Rothwell, Richmond Hill and Halton.
If we look now at the results produced after the opening of the new store, we see a rise in revenue of
20% (951,777 to 1,148,343). This equates to a new market share figure of 2.78%, which is very
close to the national average. The areas with the most notable increase are those post codes in Barwick
and Kippax, and Sherburn-in-Elmet. However, by locating in the more rural parts of east Leeds, Aldi
face increased competition from the bigger Asda, Morrisons and Tesco supermarkets. This is evident
from the clearly restricted spread of market share in Figure 8(b) around Castleford where Aldi are
already doing well. Consequently, if Aldi were to go ahead and target the Countryside customer base,
it is advised that a 10,000 or 15,000 square foot store would be more appropriate to bring in custom
from further afield.

Table 5. Market share figures for the proposed Aldi store in Halton, Leeds
Retailer
Aldi
Asda
Lidl
Co-op
Somerfield
M&S
Morrisons
Netto
Others
Sainsburys
Tesco
Grand Total

Market Share (%)

2.30
16.44
2.22
11.10
4.84
1.99
17.10
2.91
9.53
16.56
15.00
100

Weekly Revenue ()
951777
6794141
916960
4585769
1998069
824138
7063037
1203240
3939315
6841153
6198637
41316237

New Market Share (%)

2.78
16.37
2.21
11.04
4.82
1.98
17.04
2.90
9.49
16.49
14.90
100

New Weekly Revenue ()

1148434
6762172
911744
4561732
1989471
819945
7038796
1198187
3918998
6811196
6155557
41316237

21

(a) Current market share for Bramley catchment

(c) Current market share for Halton catchment

(b) Market share for Bramley catchment with new store

(d) Market share for Halton catchment with new store

Figure 8. Aldis market share figures before and after the introduction of new stores in Yorkshire and Humber (Sources: GMAP, 2010)

22

5.3 Growth in London

As stated, despite the recent expansion in London, the capital is one of the deep discounters poorest
areas in terms of overall market share (Figure 2). Consequently, in the same way as section 5.2, we
consider the development of a new Aldi supermarket in the two different locations identified by the
geodemographic analysis in section 4. The first is in SM5 1, Sutton, south London. Statistically, this
catchment area in south London offers a great deal of potential for Aldi. From a demand side, there are
a wealth of Typical Traits and Constrained by Circumstances households located in Sutton and the
surrounding LADs. Additionally, Aldi are completely absent from the entire southwest of London,
leaving a huge gap in the market for future expansion. Figure 9 (a) highlights that the closest store to
the proposed site is over seven miles away in Croydon. This is surprising, considering Lidl have six
stores in the selected catchment and many more in the southwest as a whole. In terms of market share,
Sainsburys are the market leader with an estimated 24.5% followed by Asda (19.8%) and Tesco
(19.6%). Lidl are by far the most dominant deep discounter out-performing Aldi and Netto by 1.8%. If
we now consider the introduction of the new store, Table 6 predicts that Aldi would see an increase in
market share from 0.3% to 0.8%. In real terms, this equates to an estimated 265,918 a week, some
127,078 (47%) more than the existing store in Croydon is estimated to be generating. Figure 9 (b)
demonstrates the likely catchment area for the new store. This reinforces the point made earlier about
the huge potential in the catchment, for there is clearly enough space to build at least one more Aldi
store without the need to worry about cannibalization.

Table 6. Market share figures for the proposed Aldi store in Sutton, London
Retailer
Aldi
Asda
Lidl
Co-op
Somerfield
M&S
Morrisons
Netto
Others
Sainsburys
Tesco
Waitrose
Grand Total

Market Share (%)

0.3
19.8
2.1
4.2
6.3
4.3
3.8
0.3
9.4
24.5
19.6
5.5
100

Weekly Revenue ()
139361
10101695
1050563
2168012
3240720
2185815
1952847
154438
4807165
12513811
10018844
2807485
51140755

New Market Share (%)

0.8
19.6
2.0
4.2
6.3
4.3
3.8
0.3
9.4
24.3
19.5
5.5
100

New Weekly Revenue ()

404759
10048402
1044765
2156938
3223498
2175623
1941381
153450
4783243
12447799
9966518
2794378
51140755

23

Finally, we propose a fourth store in SE9 3, Greenwich shown in Figure 9 (c). This area was selected
on account of the high percentage of households which come from the Constrained by Circumstances
classification. Furthermore, as the site is located towards the centre of the city, building a new store
here would provide an opportunity for Aldi to expand out into previously untouched parts of central
London. Aldi currently have three stores in the region which generate a market share of 1.4% (Table 7).
This is a marked improvement on the Sutton catchment where Aldi have a much lower share of the
market. Nonetheless, Lidl are once again the most successful discounter with an impressive 4% share.
In the context of the big four Sainsburys (30%) have the largest share followed by Tesco (13%) and
Asda (10%). Figure 9 (c) shows the penetration of Aldis market share across the designated
catchment. Due to the existing stores situated in Bexley and Lewisham, Greenwich appears as an ideal
gap for the location of a new Aldi supermarket. The results for the new store show that Aldi would
increase their market share from 1.4% to 2%. The store alone is estimated to generate 276,168 a week,
which would make it the most successful out of the four proposals. This equals an impressive 34.52
per square foot, again the highest out of all four modelled stores. The fact that the proposed store would
be so successful in an area where Aldi are already have a presence again reinforces the argument that
parts of London are able to take an increased supply of stores without there being a cannibalization
effect. This is evidenced clearly by Figure 9 (d), as the map demonstrates how the new store increases
market share in and around Greenwich (previously low) without impacting on the stores in Bexley and
Lewisham.

Table 7. Market share figures for the proposed Aldi store in Greenwich, London
Retailer
Aldi
Asda
Lidl
Co-op
Somerfield
M&S
Morrisons
Netto
Others
Sainsburys
Tesco
Waitrose
Grand Total

Market share (%)

1.4
10.2
4.7
13.8
5.4
4.9
6.4
0.6
5.5
30.1
12.9
4.2
100

Weekly Revenue ()
666556.2
4891702
2257996
6629709
2616086
2367466
3077236
284445
2641749
14495332
6199549
2015810
448143637

New Market share (%)

2.0
10.1
4.7
13.7
5.4
4.9
6.3
0.6
5.5
29.9
12.8
4.2
100

New Weekly Revenue ()

939185
4861948
2244817
6589246
2599821
2354505
3056930
282555
2626285
14418190
6166143
2004014
48143637

24

(a) Current market share for Sutton area

(b) Market share for Sutton area with new store

(C) Current market share for Greenwich area

(d) Market share for Greenwich area with new store
Figure 9. Aldis market share figures before and after the introduction of new stores in London (Sources: GMAP, 2010)

25

6. Conclusion

In this paper we have discussed the history of the deep discount market food retail market, especially
relating to growth in the 2000s, a period not covered to date in the literature. Using a unique data
source for the social sciences in academia, the Acxiom data set, we have examined the changing spatial
variations in the regional shares of the food market held by the deep discounters in GB, and profiled the
customer base of the discounters in two contrasting regions. In the northern region of Yorkshire and
Humberside, an area where the discounters have a high market share, we have seen the importance of
the Constrained by Circumstances and Typical Traits geodemographic groups (using the UK ONS
OA geodemographic classification system). In addition, and more unexpectedly, we have also seen the
increasing importance of the Countryside group, showing the increased penetration of the discounters
into middle income groups and also the impacts of new store locations in market towns and small
suburban centres. Similar demographic groups provide the customer base for discount stores in
London. In this case, however, we also see the importance of the group multicultural which reflects
the high number of migrant communities now living in London. Using these customer profiles we then
looked for potential opportunities for further discount growth. This is important as Aldi in particular
has impressive growth plans for the UK. If they are to achieve their target of 10% market share such
spatial targeting is vital to support future retail site location activity. In particular, we identified 4 sites
for further analysis, additionally building and operationalising a spatial interaction model to estimate
the likely impacts on revenues and market share. This analysis showed that there is still potential for
future growth in markets such as Yorkshire and Humber which are perceived as being saturated for
discounter sites in both inner city and suburban areas. The proposed new sites in London show that
despite the large number of food stores in the capital, the discounters, in particular Aldi, still have a
great deal of room for future development. We suggest at least 10 potential sites in South west London
alone. This may provide a key region of potential growth if Aldi are to meet their target figure by 2020.

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