On 15 June, Lidl will open its first stores in the USA, the Schwarz Group-owned discounter has revealed. The initial 20 outlets, which will grow to 100 within a year, will be located on the East Coast in the states of Virginia, North and South Carolina and will feature average sales areas of nearly 1,900 square metres.
Brendan Proctor, the CEO of Lidl USA, who has worked for the discount retailer for 17 years – including in Ireland and Austria – has said that the company is flexible enough to adjust should this become necessary. He went on to say that the general advantages of Lidl were its superior efficiency and sourcing for a good price-quality ratio and the time savings due to its small shops, Supermarket News reported.
On a separate note, Lidl has also announced that it will launch an online shop for its groceries in China shortly. Using the Alibaba platform Tmall Global, the Hong Kong-based office of Lidl – usually in charge of non-food sourcing – is preparing to offer some of Lidl’s best-known private labels including Combino, Bellarom and Sondey, Lebensmittel Zeitung reports. Aldi Süd recently started its own Chinese online shop on Tmall with ranges from Australia, Lidl meanwhile will distribute German products through the site.
It has taken Lidl more than forty years to take its first steps beyond Europe. Now they are coming simultaneously, in two fundamentally different directions, in the biggest markets in the world: the USA and China.
Europe has become too tight for Lidl, now it is present in 27 markets with just a few smaller ones to come, since the eastern edges such as Russia and Turkey are considered too risky. Growing in Europe through up-trading is possible, but a tedious task, as the management has learned; and bears the danger of putting on unhealthy weight. It won’t provide the impressive growth rates that Schwarz Group has become so used to.
Therefore, the US is ripe for Lidl. Finally, following arch rival Aldi Süd who entered the market way back in 1976, just three years after the first German Lidl store opened. Around 25% of Aldi Süd’s group sales are generated in the USA; and the contribution of its current network of 1,650 stores is growing noticeably.
This makes the USA attractive enough for Lidl to attempt to do the same. However, one must not forget that a large part of the Swabian discounter’s success has come from its copy-and-paste strategy. In other words, taking a working concept across the border to a neighbouring market, with initial minor adjustments. This will not work for the US. Not only are shopper needs different, but so too are the legal, supplier and logistical requirements. In any case, Lidl US will very much be an “Aldi plus” – i.e. similar to Aldi USA with some special add-ons. Very much like the situation in Europe.
So, what is in it for European suppliers? Rather good news. It is true that 90% of the range is private label; and 85% is US-sourced – but this still leaves 15% to come from other places. The percentage presumably refers to the standard range only, which Proctor didn’t disclose how large it would be. Essentially it looks like imports from Europe will constitute a significant part – if not of the permanent range – then certainly of its weekly in-and-out promotions.
Delicatessen items from different European countries have been named as promotional attractions; and Swabian-style pretzels feature in shiny photos – Lidl does not seem to want to hide its European or German roots. European suppliers who comply with US standards will benefit from Lidl’s move. The same goes for existing suppliers who will benefit from the Chinese e-commerce venture. Some will already know anyway – it is understood that international brand suppliers have already been asked for significant contributions to fund the new market openings.
What might be the downside of the move? Perhaps the coming together of Lidl with Aldi and Walmart – three retailers who are out to defend their price leadership. Add to this a merged Ahold Delhaize, plus discounter Save-A-Lot which is now led by Kenneth Mc Grath, Proctor’s former colleague at Lidl Ireland. This doesn’t sound like a retail environment for added value and healthy margins. US shoppers will love a price war, but European suppliers (and shoppers) may have to pay for it, even if only indirectly.