In the Netherlands, we've known it for twenty years: Lidl in Germany is a bargain mecca that makes everyone with a small budget wild. After its success in Europe, the supermarket chain is making the leap to the United States. How Lidl will do this, investigated Business Insider.
In the United States, the supermarket chain immediately enters into a price war with the established order. A recent study by Jefferies states that Lidl is about 9 percent cheaper than Walmart, the largest player in the US. Lidl claims to be fifty percent cheaper than rival stores.
So far, Lidl has opened 10 stores on the East Coast of the US. The German concern plans to open 80 more next year. Lidl has already opened up the entire market in the United Kingdom through price wars. Analysts expect the chain to do the same in the US.
How can Lidl stay so cheap? Also in the US? Business Insider investigated that and came up with 8 arguments.
1. Most products are from private label brands
About ninety percent of the products in Lidl stores are private labels. This means that these products are specially produced for Lidl. There are two advantages to these 'brands'. Lidl does not have an intermediary, so no extra costs have to be charged. The company also has a greater influence on production costs and can set its own prices. This allows the products to be sold with higher margins than national brands.
2. Lidl has a small selection
This is mainly something Americans will have to get used to. “There's a lot of volume, but only a limited number of products,” said Wolfe Research retail analyst Scott Mushkin. He gives mustard as an example. Lidl may only have two types of mustard: one of its own brand and a national brand. This gives the supermarket chain more purchasing power: they can purchase more from the supplier and therefore negotiate better prices.
Doug Koontz, researcher at Planet Retail RNG, told Business Insider that Lidl has an average of 20.000 different products in a store. This is a lot less than the 60.000 unique products you can find at similar American supermarkets, or the XNUMX at so-called 'supercenters'.
3. Lidl opts for 'fast-moving items'
The supermarket chain has a preference for products that customers often buy, says Mike Puglia of analyst firm Kantar Retail. “The range is limited to items that are sold quickly, which means that a lot of turnover can be generated. High-speed items mean less money stuck on the shelf.”
During a visit to the American store, Puglia noticed that there was mainly a focus on daily products such as breakfast cereals and juice instead of very specific products.
4. The stores are relatively small
The stores are small by American standards. Lidl's new stores in the US average 1900 square feet with about six aisles. This is still larger than the Lidl sister stores in Europe, but in the US it is about a quarter of the traditional supermarkets.
5. They keep staff costs low
Lidl stores have few staff to keep costs low. Lidl tries to keep a grip on communication and uses many tricks to increase efficiency. No more than normal for Europeans: customers pack and weigh their own fruit and vegetables.
The store staff is trained in such a way that they can be deployed anywhere on the floor. “This makes scheduling more flexible and efficient,” Mike Puglia told Business Insider.
6. The products are presented in the boxes in which they were shipped
Lidl usually presents the products in the packaging in which they were shipped. This makes filling boxes a lot faster and requires less manpower. The supermarket also spends a lot less money on advertising in the stores because they do not offer as many premium brands.
7. Lidl saves on things like lighting
Efficiency is reflected everywhere at Lidl and they try to save on everything. "We look at waste differently," a spokesperson told Washington Post† “It's not just about what ends up in the bin at the end of the day, it's also about inefficiencies that the customer ultimately pays for.” According to the Washington Post, the chain is looking at how to get the most out of natural light, among other things.
8. Lidl doesn't spend a ton of money on advertisements
The supermarket focuses more on small, local marketing. Also in the US. “They have been very active locally, especially with advertisements on local radio stations and targeting a specific group on social media,” says Koontz.
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