Lidls set to shake up the U.S.

With U.S. market entry firmly in its sights for 2018, European discounter Lidl continues to enjoy a high level of success in its core European markets. With more than 9,000 stores across 26 countries, and sales estimated at over $65bn for the last full year, Lidl is a significant operator that has the potential to have a significant impact on the sector.

An untapped opportunity?

On paper, the hard discount sector in the U.S. appears to be an attractive opportunity. There are only two operators of significant scale, Aldi and Save-A-Lot, and although they have expansive plans in place, their combined store networks amount to only around 3,000 stores. However, the American value-conscious shopper is well served through more than 25,000 dollar stores and of course Walmart, with its every day low price proposition delivered through almost 4,000 stores.

Fit to compete

To succeed, Lidl will have to be at its very best; retail history is full of examples of European operators, mainly British, which have fallen short of making their mark in the U.S. Tesco, with its Fresh & Easy operation, is one of the most recent and notable to have cut its losses and withdrawn from the market.

However, Lidl will be aiming to share a piece of Aldi’s success, its hard-discounting counter-part that continues to go from strength to strength in the U.S. Shoppers continue to be won over by its EDLP approach, quality private labels and small store concept. Expansion is taking it into new markets, with California the next set to be conquered. While both are considered to operate similar models, a perception that is magnified by their German roots, Lidl will aim to build on the initiatives that have enabled it to create a differentiated proposition in the sector.

Focusing on fresh

These initiatives include an expanded fresh food offer, with a focus on bakery and produce.  In Europe, Lidl has installed in-store bakeries, added loose fruits and nuts sections and increased the proportion of locally sourced produce. The latter has enabled it to communicate a stronger provenance message both in-store and online.

Expanding ranges

The beer and wine category has also been under focus, introducing more premium ranges and making it a stronger feature in-store. In France, Lidl has sought to create the look and feel of a wine merchant through new branding and fixtures.

More recently, it has sought to drive footfall with a fashionable clothing range. Across various markets it is creating unique ranges through brand licensing, aiming to build appeal among young families, while it is also introducing fashion basics and sportswear in small cities and towns where fashion retailers are absent.

Investing in quality

While price leadership is critical in driving traffic, supported in part by its private brands, Lidl has also been investing in product development to drive a stronger quality image.  It has been innovating with its country-specific brands, launching them across various markets as part of its world foods initiative.

Nervous neighbours

Inevitably, Lidl’s interest in the U.S. market has once again stirred discussions around whether or not Canada is also on its radar. Aldi’s continued success in the market also raises the same kind of questions. From my perspective, both will be firmly focused on the U.S. market for a number of years, as it offers significant opportunity for long-term growth.

The rise of ‘discountvenience’

The Canadian market is fiercely price competitive and it would be challenging for either retailer to try and win just on price. Markets in Western Canada may be more attractive, but they may not offer either retailer the desired scale. The real challenge may come as other retailers look to emulate aspects of the Aldi and Lidl models.  And while the lack of a pure hard discounter in this country potentially signals a gap in the market, new formats, such as Loblaw’s ‘Box’ concept, are emerging to fill this, with its own take on ‘discountvenience’. As retailers seek to find innovative ways to capture discount shopper spend, further hybrid models could emerge, reflecting the increased blurring of retail formats that we are seeing globally.