PARIS, Jan 12 (Reuters) - Discount stores are booming in France where consumers, disheartened by poor economic prospects, are flocking to no-frills supermarkets and forcing traditional retailers like Carrefour (Paris:CARR.PA - News) to cut prices.
First launched in an impoverished Germany several years after World War Two when two brothers opened an Aldi store, deep discounters came to France 30 years later and only started to take off about three years ago, experts say.
Gradually these firms, which sell mostly food items, have taken away market share from supermarkets and hypermarkets, traditionally favoured by the gourmet-loving French for their wide choice.
"Deep discount stores now attract any kind of customer," Eric Montazel, director at advertising marketing researcher TNS Secodip said.
"They used to draw families and people with low incomes but now also people with money go shopping there," he said, noting that even in Paris's exclusive 16th district there is a low-cost Leader Price outlet.
TNS research shows that in 2002 more than 62 percent of French households bought at least one item from year-round cheap stores such as Casino's (Paris:CASP.PA - News) low cost store Leader Price and market leader Lidl.
And last year about 322 new deep discount stores opened, taking the total to some 3,325 in France.
Deep discounters had trouble establishing themselves in France, not just because of their image but of the French appetite for fresh fruit and vegetables. Carrefour's deep discounter Ed was the first to meet French consumers' appetite for fresh products.
German-owned Aldi and Lidl, which had catered for their home country's less refined taste for canned food, followed.
Shopping at such stores fits with a broader shift to a more fast-paced lifestyle.
The limited range of products -- about 1,000 compared with 100,000 at some hypermarkets -- and no-nonsense presentation in cardboard boxes make consumers stick to their shopping list and spend less time and cash on groceries.
And like supermarkets, deep discount stores are conveniently located in predominantly residential neighbourhoods.
THE RIGHT PLACE AT THE RIGHT TIME
"In the short term, deep discounters' appeal is secured by the economic slowdown," Fortis analyst Thierry Francois said.
The French jobless rate, hovering at 9.6 percent, is higher than in any other European Union (News - Websites) country apart from Spain. In November 2003, French consumer spending suffered its biggest drop in seven years.
Still, economic factors may not be the only reason for the mushrooming of deep discount stores.
A law -- known as the "Raffarin Law" after French Prime Minister Jean-Pierre Raffarin -- requires special authorisation for the opening of new stores of more than 300 square metres (3,230 square feet). Deep discount stores tend to be smaller than that, circumventing the special regulations.
"The Rafarrin Law makes it very hard for supermarkets and hypermarkets to open new stores," Montazel said.
The hypermarket, a concept launched in Europe when Carrefour opened a megastore in France in 1963, gained ground in the seventies selling products ranging from computers to books next to food.
But recently, Carrefour's hypermarkets have suffered from changes in consumer habits. Hypermarket sales, which account for more than half of the Carrefour's sales in France, were broadly flat in 2003.
HYPERMARKETS VIE FOR CUSTOMER LOYALTY
In response the world's second largest retailer has launched an offensive, offering and expanding its no-frills Numero 1 brand which Carrefour says can be as much as 10 percent cheaper than deep discounters' products. In addition the Carrefour-brand products should increasingly become a competitive alternative.
"Low prices are the key to growth," a Carrefour spokesman said. "Our hypermarkets are trying to compete with deep discount stores by attracting consumers with comparable products -- we may see the effect in 2004."
Carrefour is trying to prove its point with three shopping carts it displays in some of its shops, each containing the same basket of products but at very different prices.
Customers buying top brand names would pay 173 euros ($220), compared to 116 euros for the Carrefour-brand cart and 81 euros for the Numero 1 product cart.
Still, regaining customer loyalty may be difficult. A recent survey by Ineumconsulting showed that 86 percent of French consumers think products at hypermarkets have become more expensive and 57 percent say they go price hunting.
More than three quarters of those surveyed said they planned to cut expenses on non-food items.
It's too early to say whether Carrefour's battle to regain customer loyalty at its hypermarkets, where it plans a major campaign in April, will pay off. And the long-term trend is that deep discounters are set to continue to grow.
"Consumers have got used to deep discount and have become loyal customers," Montazel said.
But the potential for full-fledged price wars is limited in France due to a law that prohibits retailers from selling below cost price, protecting small independent retailers from aggressive discounting.