US Insights

5 Reasons Why Lidl Won't Fail in the US

Simon Johnstone

Senior Analyst

Retail 06.14.2017 / 16:00

Lidl basket

Learning from others, and from past mistakes, puts Lidl on solid footing in the US.

As Lidl opens its first stores in the US tomorrow, the question most people still ask is will Lidl fail like other European retailers have done in the past? Whilst Lidl undoubtedly faces challenges in a unique and traditionally difficult market, here are five reasons why Kantar Retail think Lidl will not fail.

Operational And Financial Know-How

Any successful retailer will require efficient operations, a profitable financial model, and a powerful brand. The difference between Lidl and Tesco is that Tesco did not have any history or experience running a new format such as Fresh and Easy. As such, it’s financial, operational and brand strategy was less cohesive, meaning it was unable to get all these three elements working together.

Lidl is different. The discounter is accepted as a national or regional retailer in Europe, rather than an international concept with imported ranges. It localizes its offer to every market but the operational and financial elements of its model are the same. This means it can focus its attention on getting its offer and brand right for the US shopper, however long it takes.

Lidl Has “Failed”

Lidl has only ever exited one market – Norway. That failure has been a key reason behind delays in entering other markets such as the US and Lithuania. Norway was a warning to Lidl about the danger of a standardised ‘approach and the need to localise its offer as much and as early on as possible. In Norway, retailers were quick to cut off Lidl’s potential disruption by pushing branded supplier prices lower, thereby decreasing the price difference between private label and brands. Additionally, retailers dropped their Private Label (PL) prices lower than Lidl's PL offer.

In many respects, this “failure” has been a blessing in disguise, as it has helped Lidl hone its localisation efforts, with Italy being a best-in-class example. Italy is an extremely difficult market for foreign retailers to crack. Nearly all large Italian retailers are cooperative societies. The model relies on ultimate flexibility at a local level. However, after over 20 years in the market, Lidl is succeeding with a highly localised approach; this includes implementing the Italian flag into its logo, driving its PL credentials beyond the store and making 80% of its assortment locally produced.

Aldi Has Done The Hard Work

There is an interesting dichotomy going on, where Aldi is beginning to reassess European opportunities and Lidl is exploring global opportunities. Aldi will launch in Italy this year and are assessing Romania as another viable option. Lidl on the other hand is launching in the US and are sounding out plans for Australia.

Ten to 15 years ago, Lidl had a clear view on becoming the only genuine pan-European retailer, meaning a costly and rapid expansion program across Europe. Lidl was able to do this with the help of loans from the World Bank, as it was seen as a perfect partner to help create jobs and open up markets for local suppliers. At that time, juggling a difficult and complex US market entry with rapid European expansion would have made no sense operationally and financially.

Having essentially completed that rapid expansion program, Lidl’s strategy has shifted to driving same-store sales as scope for future growth in Europe is shrinking. Whilst Lidl focused on Europe, Aldi looked for a first-mover advantage in the US and Australia. In that time, Aldi has shown that both markets have been huge growth opportunities. However, Aldi has had to work extremely hard in educating shoppers of its model and building trust with shoppers.

The essence of a retailer’s brand emerges most strongly through the direct experience of the store. In some markets Lidl has struggled to fully educate the shopper of its “discounter” principals in the past. Store modernization and refurbishment had helped shake off its reputation as a poor quality, cheap store but advertising and marketing arguably play a more important role today. Credit must go to Aldi, who has shown incredible understanding of this concept, delivering exceptional results, with award winning marketing campaigns such as its Aldi Truths campaign in the US.

Many believe Lidl is too late to the party and Aldi’s first-mover advantage will make it difficult for them to differentiate. However, Lidl’s delay in entering the US will pay off because it is able to leverage Aldi’s hard work in educating shoppers about the discounter model and focus more on positioning itself as a fresh and unique shopping destination.

Patience is a virtue

As a private company, Lidl doesn’t have any shareholder pressure for short-term gains. In fact, Lidl has a history of patience in Europe. Sweden offers the best example of this. Sweden is one of the toughest markets for any foreign retailer to succeed and Lidl went over 10 years without making a profit. During this time, it has constantly evolved its brand and offer to fit the precise needs of the Swedish shopper, showcasing incredible flexibility and innovation, especially in its marketing where it launched a pop up restaurant called Dill. Dill – an anagram of Lidl had a clear objective of helping Lidl overcome the ‘bad quality’ stigma associated with its low prices and convince shopper of its quality credentials.

Size Does Matter

Aldi has announced it will add another 400 stores by the end of 2018 and spend $1.6 billion to remodel 1,300 of its stores of its current portfolio. Lidl and Aldi are continually trying to nullify one another’s advantage and differentiate in Europe. Therefore, the news is not surprising. The difference in the USA is that whilst Aldi looks to freshen up and extend its stores, Lidl’s will always be bigger at 20,000 sq.ft.

Size does matter because Lidl is bringing its format innovation to the US in phases. In phase two, Lidl will use space differently, once it has tested what is working and what is not working. This unused space will ultimately allow it to truly innovate and differentiate from Aldi as has been the case in Portugal with its Café areas and concession stands for freshly cooked poultry.

Source: Kantar Retail

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