You know you are doing something right when your rival, a giant so big that
it's been able to ignore you almost completely in the past, suddenly turns
its guns on you and takes aim. Thus when Tesco, after years of promoting its
Finest range as an upmarket treat, started to call itself “Britain's biggest
discounter”, it was a clear challenge — and a compliment — to Aldi and Lidl.
Here were two chains for whom the words “economic downturn” are anything but
terrifying. As shoppers have begun to count their pennies and trade down, so
the German stores have cashed in, their lower prices, as much as 30 per cent
lower than a regular supermarket, proving an irresistible lure.
Yet their styles are somewhat different. Aldi has relished the spotlight, even
passing into the language with the phrase “the Aldi effect”, reflecting
consumers' penchant for trading down in everything from hotel accommodation
to new cars and clothes. Lidl has been happy to remain in the shade, but,
coming to the end of a year of double-digit growth in sales and customer
numbers, it has plenty to shout about.
“It has been an immense year,” Martin Bailie, Lidl's spokesman and regional
director for the Midlands, said. “It is simply because of the work we have
done on the brand image and product management and on advertising, coupled
with the economic climate.”
For many businesses, that climate means pulling in your horns, contraction,
trimming the fat; Lidl, having just opened five new stores in a month, is
planning to step up expansion, with more than 50 stores expected to open in
2009, compared with 49 this year.
Part of that expansion will come through opportunistic buys. “Throughout the
financial year, a lot of sites have come up, including the Co-op, Somerfield
and potentially Woolworths stores,” Mr Bailie said. “We are looking at what
sites might be appealing and make business sense.”
Lidl will also be stepping into previously unavailable towns and high streets
using a smaller store format. This year the discounter opened ten smaller
stores with a footprint of 200 sq m to 500 sq m, compared with its present
average of 1,063 sq m, part of a long-term strategy to put the brand in
front of a wider audience. “We know we have to think about where can we
expand in big cities like London, Glasgow, Manchester and Liverpool, and
[opening smaller stores] has been very successful,” Mr Baillie said. “They
are holding their own in terms of Lidl estate in the UK and what we want to
do is continue with the project at a pace that meets demand. I see an
increase of another ten smaller stores next year.”
The store openings form part of Lidl's three-point plan for growth, which also
includes improvements to its range of merchandise and increased brand
awareness.
Part of the key to discount chains' low prices is their much smaller range,
which allows them to source goods cheaply and efficiently. Lidl sells only
1,600 product lines, against 20,000 in the likes of Tesco, Asda or
Sainsbury's. However, the discounter has raised its number of products by at
least 60 per cent over the past four years and Mr Baillie, a former Tesco
graduate trainee who jumped ship to join Lidl seven years ago, can see Lidl
extending its range to an optimum 2,000 lines.
Some of those new items will form a new “deluxe” premium range that is to be
introduced from January to cater to increasing numbers of monied ABC1
customers. Lidl has recorded double-digit increases in these shoppers as it
has raised store standards and introduced some organic, free-range and
Fairtrade foods, as well as considerably more fresh produce. Branded goods,
such as Anchor butter and Kingsmill bread, are also an important part of
Lidl's mix. National or international branded items have risen from 50 to
300 in the past three years and sales of these goods are up 400 per cent as
a result.
The broader range is part of a long-term strategy to prepare Lidl for a better
economic environment in which shoppers will not be concerned only about
price. “We already need to be thinking in terms of when the economy is not
as good for us as it is now,” Mr Baillie said. “What we started three years
ago is something that will help us for the next five or six years. Our
buying power is quite colossal - we are in 24 EU countries and in 11 of them
we are the market-leading discounter. When you have got that pan-European
network, you can source anything you wish.”
Yet the challenge to reach the kind of position in the UK that Lidl enjoys in
its homeland remains very tough. Lidl has only 2.4 per cent of the British
grocery market, according to the figures from TNS; Tesco has 30.9 per cent.
Even Aldi, growing at twice the pace of Lidl, can claim only 3.1 per cent.
Although Mr Bailie suggests that TNS's data underestimates Lidl's pulling
power, analysts say that the discounters remain only a minor annoyance for
the big four supermarkets — Tesco, Asda, Sainsbury's and Morrisons. Tesco is
losing more customers to Asda, while the big four's gains from the upmarket
Waitrose and Marks & Spencer are more than countering their loss to the
discounters, according to the latest customer- switching data.
Ed Garner, of TNS, said that the discounters as a whole have yet to exceed the
market share held when the now-defunct discount chain Kwik Save was still in
existence: “The major reason for their growth is that they have been able to
acquire shops and shoppers from Kwik Save rather than the middle classes
deserting Waitrose.”
James Collins, an analyst for Deutsche Bank, Tesco's broker, agreed: “Even if
each of the discounters opens stores as fast as they say they can, they are
still not going to eat into the market place significantly.” He added that
Tesco's 500-item discounter range - which is set to increase — had proved a
success and was accounting for 5 per cent of Tesco's grocery sales.
Tesco's fightback illustrates the size of the challenge for Lidl and Aldi,
particularly once the economy improves and shoppers' considerations reach
beyond price again. Nevertheless, Mr Bailie believes that Tesco's
discounting drive has highlighted the potential savings from hard-discount
stores and helped to bring them into the mainstream. “When the recession is
over, we can see UK consumers staying here,” he said. “We've had the impact
and now we are closer to a one-stop-shop than we have ever been.”
Lowdown on Lidl
— Founded as a wholesaler in Germany in the 1930s by the Schwarz family
— The first Lidl stores opened in 1973
— The company bought the rights to the Lidl name from a retired teacher,
Ludwig Lidl, because they did not want to call the stores Schwarz Markt
(black market)
— Lidl was launched in Britain in 1994 and now has 505 stores here
— Lidl has more than 9,000 stores in 24 countries
— The Schwarz family also owns the Handelshof and Kaufland store chains
