Lidl’s U.S. debut impresses grocery market watchers, will be a ‘formidable competitor’

The German discounter Lidl has for the past two years moved into an already competitive and overstocked U.S. grocery market, and analysts who recently visited Lidl stores in North Carolina, Virginia and New Jersey were impressed.

Stewart Samuel, an analyst with IGD, told Talk Business & Politics Lidl is doing a good job setting itself apart from its U.S. competitors, especially Aldi, the other German-based retailer moving into the U.S. market. Samuel said the large size of the Lidl store also enables it to offer a wider range of products than Aldi.

“While many elements reflect Lidl’s approach in Europe, the retailer has tailored the offer to the U.S. market. The bakery and wine departments are standouts in this respect, where it has created an elevated in-store experience. As a discount format, it is likely to exceed customers’ expectations,” Samuel said.

As expected, he said private brands have a higher penetration in Lidl’s U.S. business compared to other markets where it operates. Samuel said the “focus on private label enables it to further differentiate its offer, drive customer loyalty and be a formidable competitor. The focus on organics is evident.”

The U.S. version of Lidl is a strong competitor for Wal-Mart, Aldi, Kroger and H-E-B, and he said the German chain is focused on growing its U.S. footprint. Outside the Eastern seaboard states, Samuel sees Lidl is taking a look at the Atlanta market as well as Texas, where Aldi has expanded in recent years.

He said H-E-B also developed its on own value-focus format called Joe V’s Smart Shop as a way to compete with the deep discounters. Samuel said the competition with Lidl will be fierce in markets where the retailer moves in. Lidl recently announced a $100 million regional headquarters and distribution center in the Atlanta suburb of Cartersville, Ga. It will be Lidl’s fourth U.S. distribution center. Samuel said each distribution center supports about 80 stores.

‘AGGRESSIVE ROLLOUT PLANS’
Kantar Retail analysts recently told Talk Business & Politics they expect Lidl to focus on markets where Aldi is finding success because they know that chain so well. Kantar also predicts national grocers from Wal-Mart to Krogers and Albertsons will feel some pain from Lidl in markets where they compete.

Carol Spieckerman, CEO of Spieckerman Retail, has been vocal about the threat Lidl holds for grocery chains in the U.S. She recently noted in a blog post five reasons why Lidl is considered a threat. First, she said the retailer has found a way to offer a combined efficient and small-format at scale. She said the just-different-enough propositions of Lidl and Aldi cover a lot of important ground such as private and national brand strength, easy-to-shop, convenient as well as a low-cost operating model. Lidl also is testing click-and-collect in Europe and that’s something Spieckerman said they could use in the U.S. – an option dollar store formats haven’t prioritized.

Spieckerman also said Aldi isn’t standing still. It has doubled down on organics and that’s an area where Wal-Mart also expanded in recent years. Intense competition in organics is bound to bring margins down for retailers and suppliers.

“Lidl isn’t just putting a toe in the water, they have aggressive rollout plans,” Spieckerman noted.

Veteran retail analyst and Forbes contributor Walter Loeb recently noted Lidl’s U.S. invasion is not an easy feat. He said the retailer should have 30 stores open by the end of August and 100 are slated to open by mid-2018.

“I would not be surprised if this aggressive target is exceeded,” Loeb said in his recent blog.

He said there has already been legal action filed by Kroger in the U.S. claiming Lidl has ripped off its private brand — Preferred Selection. Kroger said it has thousands of items that carry that proprietary brand. Lidl also is promoting “Preferred Selection” as one of its private labels in the U.S. business. Kroger sued Lidl in a Virginia federal court claiming trademark infringement. The two parties are to appear this week in court on the issue.

“No one should be surprised by this competitive reaction. The opening battles in an all-out war are just getting underway. Sounding alarm bells, Lidl opened its first stores in Virginia and North and South Carolina, where Kroger and other grocers and discounters like Wal-Mart and Target, have been located for a long time,” Loeb noted.

GROCERY MARGINS TO SHRINK
Loeb said the 20,000 square-foot stores are modern, easy to shop and carry organic, gluten-free options in produce, meat and packaged goods. He said the Lidl stores are bright with six main aisles very wide and easy to shop. He said there is likely to be downward pressure on grocery margins and some major players will feel the pain.

“The transfer of business to the newcomers and the established players’ response will be interesting to watch. Some companies, like Target Stores which has an unfocused approach to food, will be hurt first and may need to change direction. Other stores, like Wal-Mart, will lower prices and have already begun to do so as the competition intensifies. Stay tuned as the drama unfolds. Whoever says food retailing is boring doesn’t know what they’re talking about,” Loeb concluded.

Jan-Benedict Steenkamp, chairman and professor of marketing at University of North Carolina, and author of Global Brand Strategy, recently blogged about his first impressions inside a new Lidl store which opened recently in Greenville, N.C. Steenkamp said in benchmarking Lidl against Kroger or Publix, the newcomer might not look impressive at first. But he quickly clarified that misses the point. He said when comparing Lidl to Aldi each provide unmatched value for the money and that is a problem for traditional low price grocers. Some of Steenkamp’s observations include:
• Lidl’s impressive European bread and bakery selections, which are coveted by U.S. consumers.

• Upscale private label is displayed in all black boxes under the brand “Preferred Selection,” which is now entangled in litigation.

• Lidl is not above copycatting the national brands. He found Lidl’s version of Oxiclean, which is branded Oxystain.

• Lidl caters to conscious shoppers by selling “always certified” fish.

• Lidl offers a wide range of organic products located in a special section of the store and in easy-to-notice all green boxes.

Lidl also offers shoppers a treasure hunt in its central aisle which is reserved for “surprises.” The retailer changes out this merchandise twice a week on Monday and Thursday to give shoppers a reason to come back. Aldi also dedicates two of its aisles at any given time to generate merchandise that rotates on a seasonal basis.