Lidl a Threat to Area Grocers: Survey

Lidl’s imminent U.S. entry, beginning with the Carolinas and Virginia, could remove $1 billion in local sales in the medium term, according to a survey conducted by global consulting firm Oliver Wyman.

The survey found that consumers are overwhelmingly excited about shopping at Lidl, although they’ve never been in any of the hard-discount grocer’s stores before, with 39 percent saying they would shop at Lidl once a week or more in the future. These results were driven by consumers’ expectations of high quality and innovative products, Oliver Wyman noted.

“Incumbent grocers need to take notice: The threat from Lidl is real and will only get clearer as their stores generate trial and repeat sales,” cautioned George Faigen, partner in the retail and consumer goods practice of Boston-based Oliver Wyman. “Grocers who believe ‘my customers would not shop at Lidl or Aldi’ will likely be surprised. The U.S. and European trends we have measured over the past five years tell a clear story of consumers moving portions of their weekly shopping from incumbent grocers to these private brand retailers.”

Among the survey’s key findings:

• Although none of the respondents had ever been to a Lidl store in the United States, 67 percent said it’s (very) likely that they’ll try shopping at Lidl, and 52 percent are (very) excited about shopping there.
• Contrary to commonly held industry wisdom, households at all ends of the income spectrum are excited about Lidl’s store openings. In fact, 49 percent of households with an annual income of more $75,000 are excited about Lidl, compared with an almost identical 48 percent of households earning less than $25,000 last year.
• There’s particularly high consumer excitement regarding Lidl’s new product offering and highly awarded private brands, although respondents did cite their unfamiliarity with Lidl’s private brands as a top concern as well.
• Concerns about Lidl’s fewer services for consumers and no deli or other service counters were less of an issue for consumers.
• Whether consumers shopped at traditional, specialty or regional grocers in the past, there’s very high interest in shopping at Lidl in the future.
• Consumers who already shop at fellow hard discounter Aldi, which has embarked on a remodeling and expansion program to address the coming threat, are in general more excited and likely to try Lidl than non-Aldi shoppers.

“The results show us that consumers are ready to give hard discounters like Lidl a chance, and incumbent grocers need to be ready,” Oliver Wyman said, adding: “Grocery retailing is a zero-sum game, meaning every dollar spent at Lidl will be missing from the pockets of the incumbent grocers. With more pressure on already razor-thin margins, working on step changes in cost efficiency will be critical. Incumbents will also have to go beyond cost and improve their connections to their customers especially in areas where Lidl will find it hard to replicate.”

These areas include price and promotion strategies, category strategies, private-brand architectures, third-party relationships, store services, stores’ fresh offering, and shopper engagement and loyalty, according to the firm.

Fielded in the United States this month, Oliver Wyman’s online questionnaire garnered 508 responses from consumers in North Carolina, South Carolina, and Virginia. The sample consisted of 54 percent female consumers, 60 percent with a household income of between $25,000 and $100,000, and 30 percent Millennials (ages 18-34).

In other Lidl news, Mike Paglia, director at Norwalk, Conn.-based Kantar Retail, predicted that by 2023, Lidl would have 630 stores open across the United States, with an initial focus on suburban metro markets, and that the retailer would be generating almost $700 million in sales by 2018, growing to $8.8 billion by 2023 as customers start to gravitate from other grocers.