Less complexity, lower prices, better choices and greater confidence: That’s the pitch of German discount grocer Lidl to consumers as it enters the U.S. market.
“Lidl is grocery shopping refreshed, retooled and rethought to make life better,” said Brendan Proctor, president and CEO of Lidl U.S., in a press release.
Lidl, which operates about 10,000 stores in 27 European countries, opened its first U.S. locations June 15 in North Carolina, South Carolina and Virginia. Its U.S. headquarters are in Arlington, Va., and the grocer plans to open 20 stores this summer and 100 stores by summer 2018.
At 20,000 square feet, the Lidl stores will feature what the company calls “a manageable, easy-to-shop” six-aisle layout. They will offer fresh baked goods in a bakery at each store’s entrance; wine; sustainable options, such as fresh and frozen seafood that will be certified sustainable by the Marine Stewardship Council, Best Aquaculture Practices or the Aquaculture Stewardship Council; organic and gluten-free options, including fruit, vegetables and meat; and private-label products that contain no synthetic colors, trans fats or added MSG.
“They’re going for that Aldi customer and that Wal-Mart Neighborhood Market store customer,” says Jim Fisher, CEO of IMST Corp., Houston. He describes the number of new sites as “a very grandiose plan.”
“To say from Day One that they are going to find 100 pieces of real estate that are applicable for these stores, go through the permitting process, the variance process, all the other zoning issues … that is a big, big nut to crack in the next 12-plus months,” he says.
And it just so happens that many of the U.S. Lidl locations will be positioned near its competition —and for good reason.
The site location strategy for a “discounter” such as Lidl “can appear illogical at times, as they generally like to site themselves nearer a larger competitor store,” according to a report from market intelligence firm Grocery Insight UK. “It’s all about secondary footfall.”
The thought is that as consumers visit the larger grocer, they will drive past Lidl and realize it is a place where they can make similar purchases and possibly for a better price, said the report’s author, Steve Dresser, director of Grocery Insight UK, Harrogate, England.
“If the customer is on a budget, they may purchase branded items and other items at the larger supermarket before visiting the discounter for the secondary shop of staple items where price is low and quality is more than acceptable,” Dresser said.
As Lidl works to build a following with U.S. consumers who likely haven’t heard of the chain, this strategy could work to Lidl’s advantage. “The secondary mission quickly becomes a primary mission, with the customer only visiting the larger store for the items that a discounter doesn’t stock, or where personal tastes may overcome a discounter equivalent,” Dresser said.
About 90% of the groceries available at Lidl will be exclusive brands, a model similar to that of Trader Joe’s or Aldi. This “drives loyalty toward the discounter,” Dresser said. “The customer must visit the discounter, as that product isn’t stocked elsewhere.”
That said, Lidl could face headwinds on pricing, especially as it competes with one of the U.S. retail industry’s most formidable discount giants.
“A major difference between the U.K. and U.S. markets is that EDLP (everyday low pricing) is already used here by Wal-Mart,” Dresser said. “So Lidl with their slightly lower prices … doesn’t have a hugely lower price basket to use as bait.”
Lidl said shoppers can expect to get “top-quality goods and groceries at up to 50% less than other supermarkets in the United States … based upon a price comparison of comparable products sold at leading national retail grocery stores.”
One way Lidl keeps costs low is through its “bring your own bag” policy, which “allows us to omit the cost of bags into our prices,” the company said on its website. Another way is by locally sourcing meat, fruit and vegetables, and baking its breads in-store.
The Aldi Factor
Perhaps a bigger threat than Wal-Mart is Aldi, a grocer that also has roots in Germany, is privately owned and has stores similar in size (15,000 to 20,000 square feet) and product offering. Aldi has been in the United States since 1976 and has more than 1,600 stores in 35 states.
But Mike Paglia, director of retail insights for Kantar Retail Americas, Boston, says the similarities are “largely superficial.”
“Aldi, generally speaking, doesn’t deviate a whole lot from its core model. Rather, it opens stores where it believes it will be successful,” he says. “Lidl, on the other hand, is highly adaptive. It will modify its assortment, promotions and marketing to fi t local preferences across multiple markets.”
Lidl has two main promotions: “Fresh 5” specials, a “deeply discounted” selection of three fruits and vegetables and two meats that changes on Mondays and Thursdays; and themed weeks, such as Italian, Greek or French Week, that begin on Thursdays.
Lidl is far louder than Aldi when communicating lower prices to its customer, Dresser said. Store aisles have many signs highlighting two-for deals and other price-based promotions.
These low-price initiatives could be the key to Lidl’s success in the United States, which Paglia says is saturated with “large underperforming, undifferentiated stores.”
“Shoppers aren’t terribly loyal to them,” he says. “The U.S. shopper base has increasingly signaled a growing appeal for private-label, nuanced value (i.e., offering low prices and higher quality), as well as small stores that facilitate small, frequent fill-in trips.”
Lidl, on the other hand, “is known for a pace of innovation and evolution that few can match,” says Paglia.
But Fisher of IMST isn’t concerned about a threat to the convenience industry: “It’s not another alternative to convenience stores. Period. It’s a grocery alternative.”