Food groups face up to life with deep discounters

CHICAGO (Reuters) - Food and consumer groups are learning to live with the growth of Europe's extreme discounters, and although business can be tough on margins they cannot ignore these retailers which are growing during a recession.

Europe's so-called hard discounters, such as Aldi and Lidl, which offer cheap prices and limited product lines, have picked up business as hard-hit European consumers increasingly look for cheaper products in the economic downturn.

Groups such as Sara Lee Corp (SLE.N) and Reckitt Benckiser (RB.L) have been doing increasing trade with these two German hard discounters as these retailers have increased their market share in many West European markets.

"Hard discounters used to be viewed as enemies but they need brands and we have been supplying them," Sara Lee CEO Brenda Barnes told the Reuters Food and Agriculture Summit in Chicago this week.

Sara Lee's West European business, largely made up of household and personal care products such as Ambi Pur air fresheners and Radox shower gels together with coffee brands such as Senseo, has grown with the hard discounters, a business which was simply not there a few years ago, Barnes added.

Britain's Reckitt Benckiser noted that Lidl was now starting to stock more mainstream brands than two years ago, offering opportunities for the group to sell more of its Finish dishwasher products and Cillit Bang cleaners.

Its chief executive, Bart Becht, told Reuters last month that his group was selling more of its brands through Lidl and this was a major reason why private-label brands were losing market share in Germany in his group's product areas.

Campbell Soup Co (CPB.N) CEO Douglas Conant told the Summit that his group -- the world's largest soup company -- sold "very little" to Aldi and Lidl, but that was because it had the No. 1 soup brands in Germany and France in Erasco and Liebig.

"Europe is a growing but very challenging market for us, but we are helped by having the No. 1 brands in Germany and France," Conant told the Summit.

In 2006, Campbell sold all its British and Irish business to Britain's Premier Foods as analysts said it faced pressure from soup market leader HJ Heinz Co (HNZ.N) and increasingly aggressive food retailers, and had found it difficult to compete without a No. 1 or No. 2 national brand.

Analysts said big food and consumer product groups were doing increasing trade with the hard discounters as a matter of necessity due to Aldi's and Lidl's increasing market share.

"The big groups cannot afford the luxury of not doing business with Aldi and Lidl although it is likely to be putting pressure on their margins," said a food industry analyst.

(Reporting by David Jones; editing by Matthew Lewis)