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Germany: Quality at a low price is moving back into the focus of customers

Updated: Mar 12, 2021

German discount retail chains are expanding their presence in Eastern Europe. Value for money, trust in the retailer brand and an efficient shopping process are gaining in importance for customers. #Lidl achieves pre-tax earnings of almost one billion euros in the region and invests the most.

German low-price providers are increasing the rate of expansion in Central Eastern Europe. In response to an #LZ request, Aldi Nord in Poland stated that it intends to open 45 new locations by the end of the year. That would be the biggest expansion in the history of Aldi Poland. The branch network expanded by 24 new stores in 2020, compared to only half a dozen new properties in each of the previous years. Lidl Polska also wants to grow faster.

After 40 new locations in 2019/20 (February 29th) there are currently over 45. According to the Polish newspaper “#Rzeczpospolita”, the retailer is even planning to increase its investments again in 2021, by half compared to previous years. Lidl allegedly wants to invest the equivalent of a good 330 million euros on the Vistula.

The Corona crisis is helping the cheap formats there. Customers are looking more closely at the price again. According to #Euromonitor, discounters in Poland grew by 7.7 percent in 2020, far ahead of other formats. Hypermarkets, for example, lost 14.3 percent in sales compared to the previous year due to the temporary closure of shopping centers. Nielsen data show that discounters increased their share of the shopping basket for groceries by an impressive 2.8 percentage points to 38.5 percent in 2020. Quality at a low price is gaining in importance. The Polish trade association #POHiD reports that sales with own brands - the domain of discounters - are growing by double digits.

At the same time, the market researcher #HiperCom confirms that the number of advertising campaigns in weekly brochures across the country fell by 17.2 percent in the Corona year. Only the discount - contrary to the trend - was the only sales channel to advertise 12 percent more products. The pandemic is not only giving discounters tailwind in Poland. They also set the tone for growth in other countries in Central and Eastern Europe.

According to the financial newspaper "#Ziarul Financiar", the #Penny Market in Romania has exceeded the sales growth of 2019, which at that time was already 15 percent compared to the previous year, and achieved almost 1 billion euros in net sales in the Corona year. The #Rewe subsidiary also wants to expand more. After opening 20 new stores last year, Penny plans to open more stores in the current period. Arch-rival Lidl is also picking up the pace. After 25 stores in 2019, the discounter opened almost 30 new stores in 2020/21.

Lidl is the clear leader in the expansion of space in Central Eastern Europe. After more than 110 new stores in 2019/20, almost 120 new Lidl stores have opened in the region as of today. Lidl also has the financial strength to do so. According to LZ research in national balance sheet data, the discounter earned around 1 billion euros before taxes in nine countries in the region in 2019. This corresponds to an average pre-tax return of 6.9 percent. Competitor Penny achieved a pre-tax profit of 58 million euros (1.8 percent pre-tax return) in three countries and the two Aldis achieved a pre-tax profit of 7 million euros (around 0.4 percent) in three countries.

According to Marc Houppermans, Executive Partner at #DRC Discount Retail Consulting GmbH, Lidl's active expansion is also due to the higher pressure to succeed that the discounter is exposed to. Lidl must constantly deliver growth and results in order to obtain the most favorable financing conditions on the international capital markets with the current negative interest rate. Aldi, on the other hand, is fully privately financed by the Albrecht family's foundations.

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