Lidl US: What May Be in Store
Lidl US appears to be off to a strong start in this country: Its first 20 stores are slated to open June 15, with up to 100 debuting along the East Coast by the end of the year, and additional future locations in such places as Ohio and Texas.
But how likely are American shoppers to warm up to the German hard-discounter’s style of retailing – which involves a large number of private label products – with less product choice and a higher degree of self-service than many U.S. grocery shoppers may be used to?
Additionally, the specter of such spectacular flameouts as Tesco’s failed U.S. Fresh & Easy concept may give other foreign supermarket retailers pause when it comes to taking their business stateside.
Steve Dresser, director of Harrogate, North Yorkshire-based Grocery Insight UK, shared his thoughts with Progressive Grocer on Lidl’s chances of success in its 28th country.
“Lidl announcing 100 stores is unsurprising in such rapid time,” he said. “Their model requires them to reach scale on a volume basis with suppliers; this means that they’re able to bring the overall buying price down, due to a limited range, and guaranteed sales, as the customer can only choose from one to two options. More stores means greater buying power, and thus ... lower prices to remain competitive and also enhance their margins.”
Dresser added that “by expanding … so rapidly, they can have constructive failure, quickly working out what isn’t working, which sites aren’t quite right, which will shape their next phase of growth.”
What he found particularly intriguing is how the grocer would “cater for the local tastes/demographics as they expand from town to town and state to state. They have a formulaic model, which works for them, but have to equally offer relevance to the local customers.”
Observing that Lidl always aims to be the market leader on price, Dresser said that Lidl would “look to compare their own label with the brand leaders, as they do in the U.K., which then means they can flag a 50 percent price differential. …They keep prices low, because if you’re buying croissants, there is just one option – so all croissant sales go through one product, thus ultimately bringing the overall buying price down as the volume increases.”
As for its reception in the United States, he noted: “I think Americans will like the high-scale offerings, and Lidl have learnt from the U.K./Irish expansion, and therefore will be instantly known as a retailer of good-quality products at low prices. This means that they can avoid Aldi US’ mistakes of ‘existing’ and not being renowned for anything in particular. The key question around Lidl is whether Americans are ready for discount. When Aldi/Lidl did really well in the U.K., customers were struggling with recession and austerity, and the big supermarkets were not really advancing towards EDLP and carried too much range with too many deals. Therefore, discount became an acceptable alternative.
“However, with the U.S., Walmart and Target are coast to coast, and there are so many strong state-wide retailers, too, that are part of the furniture in many ways,” he continued. “Service is a key differential here, too, with bag packers and carry-to-car service offered by the likes of Publix, without a customer needing to ask, whereas Lidl is about avoiding cost, and that means charging for carrier bags – no such thing as a free bag after all – and using $1 for trolleys to prevent them being stolen, or someone having to walk around the car park collecting them. Are Americans ready to pay for carrier bags? Using a box from the shelf for their goods if they don’t want to pay for a bag? $1 for the shopping cart and walking it back from their car to a return point? Long queues at times due to the lower cost to operate nature of the stores?”
On the other, hand, he pointed at that at Lidl, “you can comfortably get a fair amount of shopping and be out to the car in [about] 20 minutes.”
In the end, Dresser predicted that the grocer would “differentiate on quality, as it’s never just about price. But if Walmart, et al., prevent that price gap from ever opening up, then it certainly nullifies a huge benefit of discount: price. That said, Lidl will try overcome that by equalizing their products to brand leaders.”