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The retailer LIDL has announced they are setting up stores in the Australian market. Please help me understand the retailer LIDL and their likely success in Australia by providing a company analysis of their model, performance and competitors.
Hello! Thanks for your question about Lidl. The short version is that after conducting market research for the last few years, Lidl does not currently plan to open stores in Australia but is exporting Australian products for sale in Europe and Asia. Below you will find a deep dive of my findings.
METHODOLOGY
To answer your question, I scoured corporate websites and trusted media sites.
LOCATIONS
Lidl began in 1973 in Germany. In the 1990s, Lidl expanded to other European countries. Lidl eventually moved into other parts of the world, including Lithuania (2016), USA (2017), and Serbia (2018). The company currently has more than "10,000 stores in 27 countries." Their locations include: Canaries, Portugal, Spain, Ireland, Northern Ireland, Great Britain, France, Belgium, Malta, Italy, Switzerland, Luxembourg, Belgium, Netherlands, Denmark, Germany, Sweden, Finland, Lithuania, Poland, Czech Republic, Slovakia, Austria, Slovenia, Cyprus, Greece, Bulgaria, Romania, Serbia, Croatia, Hungary, USA, and Hong Kong. In 2015-2016, Schwarz Group had its most success in Spain, Austria, and the Czech Republic.
PERFORMANCE
In 2015-2016, "Lidl's revenue grew by 9%" to 64.4 billion euros, or about 96 billion AUD. In that year, Schwarz Group had a revenue of 85.7 billion euros, or about 128 billion AUD. Lidl therefore made up 64.4 billion / 85.7 billion = 75% of Schwarz Group's total revenue.
For the fiscal year ending in February 2017, Schwarz Group reported total net sales of 90.2 billion euros, or about 135 billion AUD. If we assume that Lidl made up the same proportion of Schwarz Group's earnings in 2016-2017 as in 2015-2016 (75%), then Lidl's total worldwide sales in 2016-2017 were 90.2 billion * 75% = 67.65 billion euros, or about 101 billion AUD.
BUSINESS MODEL
Lidl is a "discounter," and their model "lies on fundamentals like limited assortment, simple processes and good price." It is known for its simplicity and was "ranked as the world's third-simplest brand in the 2015 'Global Simplicity Index' by Siegel + Gale." Its goal is "to be a time-saving, life-enhancing grocery store where you love to shop." Similarly to Aldi, "Lidl keeps prices low by limiting inventory to a lean selection of private-label items, versus traditional supermarkets that tend to carry several different brands of a single product." Lidl uses Twitter and Facebook extensively to reach young consumers.
In terms of future development, Schwarz Group "plans to increase its capex from EUR 5.2 bn to EUR 6.5 bn in the current financial year 2016/17." For Lidl specifically, "the majority of funds will be allocated in the new store openings and store remodeling based on its store of the future concept." Within the last year, Lidl has been moving towards its "store of the future concept" and aims to establish itself as a "one stop destination." Their new stores are often "located in residential areas, shopping malls, and high streets with limited or even no parking space." Their new stores also feature "wide paths, an extended fresh food area" and a "larger non-food range."
As a part of this one-stop shopping destination, Lidl is experimenting with a few new developments. Firstly, it recently developed a fashion line with supermodel and icon Heidi Klum, which will be available in the US and Europe in late 2017. Secondly, Lidl is also testing online shopping and "launched its online banner in Belgium and Netherlands in 2016."
When entering new markets, Lidl focuses on "cultivating relationships with local suppliers in each region to offer our customers high quality products at low prices." They also adjust their marketing practices and model based on the consumers in that particular market. For example, in expanding into the United States, Lidl has labeled itself as "a cross between Trader Joe's and Harris Teeter." It is working to distinguish itself from Aldi in that region. Based upon their market research, they have determined that "US consumers don't like discount groceries." In order to address this, they are aligning their US stores with higher-end brands and products. These will include "locally sourced products, wine, and coffee." In terms of area, their stores will be twice the size of Aldi.
COMPETITORS
Lidl and Kaufland are both part of Schwarz Group. Lidl distinguishes itself as a "discount supermarket," while Kaufland is a "discount department store." In recent years, they are "being encouraged to work together and share resources." Kaufland is based in fewer countries than Aldi or Lidl, and its stores are much larger. Kaufland stocks a larger range of items, including many brands that aren't their own. Because the two companies are part of the same group, I focus my research here on Aldi.
Aldi is a major competitor of Lidl. It is located in 19 countries: Australia, Austria, Belgium, China, Denmark, France, Germany, Great Britain, Hungary, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Slovenia, Spain, Switzerland, and USA. The two companies are different because Lidl uses a "soft discount strategy," selling a "larger number of items that include both branded products and store products at lower prices." Aldi, on the other hand, uses a "hard discount strategy," selling fewer items at lower prices.
Lidl and Aldi also use different strategies when entering new markets. Aldi takes a slower, more measured approach, entering into a new country approximately every ten years. There is conflicting information about Lidl's approach to new markets. According to one source, Lidl moves into new markets rapidly, which has led to major wins and major losses. According to another source, however, Lidl moves more cautiously. For example, in two countries, Lidl waited over five years after opening a field office before opening their first store.
According to a 2015 report by Brittain Ladd, a "former Deloitte consultant," Lidl and Aldi don't face many problems working alongside each other because they use different marketing strategies. A common saying is, "Wherever Aldi goes, Lidl is soon to follow." However, Lidl uses this to its advantage. When entering a market where Aldi already exists, Lidl has the benefit of consumer knowledge. Shoppers "are already familiar with the hard discount model and its cornerstones." Lidl builds upon this knowledge base and then distinguishes itself for customers who want something slightly different in two ways: a slightly softer discount experience or a slightly more traditional supermarket experience. Lidl is also known for having "larger and brighter stores and wide product range" compared to Aldi.
In the United States, specifically, Lidl plans to distinguish itself from Aldi with "a broader selection and a stronger focus on fresh products."
AUSTRALIAN MARKET
As of May 2017, Lidl stated that they do not intend to open stores in Australia anytime soon. In 2015, Lidl did make plans to expand to Australia, but after further research, they determined the market is too small and concentrated. Michael Bate, Colliers International's head of retail, explains that Aldi was successful in Australia because it filled an existing market gap. Now, however, there isn't "enough demand in the Australian market for another major supermarket chain."
Currently, Lidl intends to focus on expanding to the United States. It also is working to export Australian products to sell in Europe and Asia. In Lidl's place, Schwarz Group plans to open Kaufland in Australia, though perhaps not for several years.
It should be noted that Lidl "applied for thousands of trademarks in Australia since the year 2000." It's speculated that Lidl may open stores in Australia later, after their expansion into the US. Alternatively, these trademarks may be related to Lidl's export of Australian goods.
If Lidl were to open stores in Australia, the effect is expected to be significant. Some have said this would be "the single biggest shake-up in the grocery sector" since Aldi expanded to Australia. It's anticipated that Lidly would emulate Aldi's model for expanding into the Australian market, given Aldi's rapid success. Just as consumers have welcomed cheaper goods at Aldi, media have also predicted that they would welcome Lidl.
SUMMARY
To wrap it up, after conducting market research for the last few years, Lidl does not currently plan to open stores in Australia but is exporting Australian products for sale in Europe and Asia. Thanks for using Wonder! Please let us know if we can help with anything else!