"Has Lidl gone far enough in the UK market? Like the French, British consumers have been spoilt by the choice found in large-store grocers and for many the hard-discount format remains alien and unappealing."
See also Mintel's November 2012 report, Supermarkets: More Than Just Food Retailing - Europe.
What we've seen
- In 2011, Schwarz Group, owner of the Lidl and Kaufland fascia, became Europe's leading grocer by revenues.
- October 2012 saw Lidl announce plans to soften its hard-discount proposition in France.
- In Germany, Ireland, and the UK, Lidl is also showing signs of a slightly softer proposition with the roll-out of in-store bakeries.
As we noted in our November 2012 report, Supermarkets: More Than Just Food Retailing - Europe, Germany’s Schwarz Group, operator of Lidl, is now Europe's largest grocer by annual revenues. In 2011, Schwarz moved ahead of Carrefour - although this was due more to Carrefour's sale of its Dia chain than the performance of Schwarz itself.
Subsequently, October 2012 saw Lidl announce plans to soften its hard-discount proposition in France, its second-largest national market: the retailer will introduce more branded lines, and develop its fresh produce with more attractive merchandising, and install in-store bakeries across its estate. Lidl is also installing in-store bakeries in its German, Irish, and UK stores but without a concurrent shift in the overall proposition in these markets. The French press proclaimed this an effective abandonment of hard-discount proposition by Lidl in France.
Schwarz Group is notoriously secretive and reticent in releasing any kind of operational data and, unsurprisingly, it did not respond to Mintel's request for comment on the changes to its offer in France. But this move could suggest disappointing underlying growth for Lidl in the French market. It also marks the second stage in the softening of Lidl’s offer in France, the retailer having expanded its branded offer back in 2008; this first shift may not have been radical enough for French consumers accustomed to the huge choice from the hypermarkets and the artisan offer of specialist food retailers.
The number of branded lines offered in Lidl stores already varies by country, suggesting a willingness to tailor to market: there are already a significant proportion of branded lines in its UK, Irish and German stores, and especially in the French outlets, while Lidl stores in Portugal and the Netherlands have traditionally seen a much stronger focus on private labels. The heightening of Lidl’s move away from its hard-discount roots in France raises the possibility that we could see a further nuancing of its wider proposition elsewhere in Europe.
More modest changes in Germany and the UK
In Germany – the discounters’ heartland - Penny and Aldi Nord traditionally mark the opposite ends of the discounter spectrum: Rewe Group’s Penny is a soft-end discounter while Aldi Nord has traditionally been the hardest of hard discounters with small stores and relatively few SKUs. But both these chains are now investing heavily in more attractive stores and augmentation of product ranges. With these two retailers comprising the book-ends to the sector this arguably shifts the entire German discounter sector to a softer positioning.
As in the French market, Lidl is rolling out in-store bakeries in its German network – and this is one of the changes also being undertaken at Aldi Nord as part of its major store refit plan. So with Penny, Aldi Nord and Lidl moving to soften their offer to various degrees, will Aldi Süd (the other half of the Aldi empire) be compelled to amend its offer, and could there eventually be pressure on Lidl to undertake a more substantial revamp in its domestic market?
The UK is Lidl’s third-largest market, and here too we are are seeing the introduction of in-store bakeries. Lidl UK does not lodge decipherable accounts, but a number of sources indicate the retailer saw substantially slower growth than its arch competitor Aldi UK in 2011 – resulting in the latter overtaking it in revenue terms. Mintel estimates Lidl UK saw around 12% revenue growth in sterling terms in 2011, so it is clearly not struggling – but has it lost the competitive edge to its only rival in the UK discount segment? While Nielsen Media Research recorded a 20% year-on-year fall in advertising expenditure by Lidl UK in 2011, Aldi upped its recorded ad spend by nearly 15% as it undertook a major TV campaign that underlined the brand-equivalence of its products. This potentially puts Lidl on the back foot in terms of establishing a quality proposition in the mind of the public.
What this means
- Schwarz Group's tailoring of the Lidl format in France suggests a strength in willingness to shape the proposition to market, and this should help underpin its position as Europe's largest grocer.
- If the overhauls in the proposition from Penny and Aldi Nord prove popular in Germany, Lidl may feel pressure to revitalise its offer in its domestic market.
- And has Lidl gone far enough in the UK market? Like the French, British consumers have been spoilt by the choice found in large-store grocers and for many the hard-discount format remains alien and unappealing.
- Might we see Lidl go further – and steal a lead on Aldi by introducing elements of its softer discount format trialled in France to the UK market?
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