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USA: How Lidl wants to proceed

Updated: Jul 31, 2020

Discount Retail Chain Lidl (owned by private investor Schwarz Group) will cut the ribbon in front of the new market on Mount Holly Road in Burlington, New Jersey. But Lidl cannot celebrate this 104th new opening in the USA as carefree as the company would have liked. Although the dealer calls the ceremony "Grand Opening", the hygiene and safety regulations in the corona crisis do not allow for much solemnity.

There will be the mandatory balloons in the company colors blue, yellow and red. The first 100 customers who flock to the store at 8 a.m. are given vouchers valued between $ 5 and $100. But then the team of the discounter will return to the agenda relatively quickly.

The Lidl US CEO, Johannes Fieber, has no time to celebrate anyway. He has his hands full trying to expand the stores in the United States. For a long time it looked as if this trip to the New World could even turn out to be a flop for the successful European Discount Retail Chain. But now the business seems to have stabilized. "We are counting on long-term growth in the USA," said Fieber recently almost defiantly.

Market research firm Ascential estimates Lidl will generate $1.5 billion in sales this year in the United States. Last year it was $1.18 billion (about $1.2 mio per store per year).

Nevertheless Europe's largest retailer had much higher expectations in the United States. "The pace will be very high, we want to grow, the USA is a strategic market for us," Lidl boss Sven Seidel announced at the time in the Handelsblatt interview. A budget in the high three-digit million range was estimated, initial losses in favor of rapid expansion were factored in.

Hundreds of stores were to be built in the first year, large internationally Lidl format standarised glass palaces that delight customers and make the competition fear.

It quickly became apparent that the expansion in the USA was planned in a hurry and poorly adapted to market conditions. The stores were too big, many locations were chosen incorrectly, and Lidl had not geared enough to the needs of US customers. A lot of money was burned with the purchase of dozens of properties that were later not used. The company simply got caught.

Hard interventions in the branch network

A warning example for Lidl is the British food giant Tesco. He wanted to take the USA by storm in 2007 with his "Fresh & Easy" concept. But in 2013, the US subsidiary had to go into bankruptcy protection. The chain was sold and finally gave up in 2015. Here too it was due to the wrong assortment and unfavorable locations. Tesco is said to have lost a billion dollars at the time.

Schwarz Group's (Lidl owner) boss Gehrig took consequences much quicker at Lidl in order to prevent complete failure. He changed management and sent Fieber, until then Lidl boss in Sweden, to the USA as the new CEO. Roman Heini later joined as Chairman, an experienced discount retail manager who had previously had a career with competitor Aldi.

The two newcomers did not shy away from tough decisions. Not only did they slow the pace of expansion, they even closed previously opened stores such as Rockingham and Kinston in North Carolina, which were among the first to expand in the United States.

Instead of buying plots of land and building the shops from scratch, existing buildings are now being used. The markets are significantly smaller, no longer have to stand alone, and renting is also possible. In order to keep costs down and still make faster progress, the discounter took over 27 'Best Market' stores in New York and converted them into Lidl stores.

The Lidl principle, with which the retailer has successfully stood up to the discount retail inventor Aldi in Europe for decades, is also discounting - but it is much nicer and with more branded items. Now it is being Americanized - with other products, more aggressive prices, less frills.

At the same time, the discounter is further developing the logistics infrastructure. In late March, the company opened its third regional distribution center in Cecil County, Maryland. The company has invested $114 million in this 65,000 square meter warehouse and the connected regional headquarters. It supplies stores in Maryland and New York from there. "This will support our expansion plans in the region," said CEO Fieber at the opening.

And the expansion is far from over. The company is investing another $ 114 million in a regional distribution center in Georgia, which will be 86,000 square meters larger than that in Maryland. Lidl has only had six stores in Georgia to date.

Experiences from Great Britain help

Just like Aldi, Lidl initially had difficulties in winning over British consumers. Both discounters have drawn the conclusion from this to massively change the range in order to adapt it to the wishes of customers.

Today Aldi and Lidl already hold 13.6 percent of the UK market and put the established retailers under enormous pressure. Lidl has just announced it will invest another $1.64 billion in the UK by 2022. Lidl plans to open 25 new stores there by Christmas. Aldi is also investing heavily in Great Britain and plans to expand its branch network from almost 900 to 1200 stores by 2025.

An interesting detail: The architect of the successful Aldi strategy in Great Britain was Roman Heini, who had headed Aldi UK until 2015. Now he can bring his experience to the Lidl turnaround in the USA.

Part of this strategy was a striking openness to marketing and communication. While managers from Aldi and Lidl in Germany tend to bite their tongues before speaking in public, Heini readily gave interviews during his Aldi days in Great Britain and was seen at social events.

Heini and his colleague Fieber are now pursuing a similar presence policy for Lidl in the USA. They even express themselves on social media - and also on social issues. For example, CEO Fieber took a position on LinkedIn regarding the unrest following the death of African American George Floyd after a brutal police operation.

High growth potential for discounters

The social upheavals and the consequences of the corona pandemic in the USA will strengthen the position of discounters. The erosion of the middle class will increase, the recession will exacerbate the problem of unemployment. All of this will lead to people looking even more for quality products at affordable prices.

Aldi also did not sit still during the Lidl US attack, but massively intensified its own expansion there. Aldi now has more than 2,000 stores in the United States. According to figures from Ascential, Aldi South is likely to generate gross sales of around $ 20 billion this year - and for the first time could therefore be just before the discount store's sales in its home market of Germany.

But the success of its direct rival has no impact on Lidl's expansion. The market conditions in the USA are excellent for both, because of the market size and potential.

Source: Handelsblatt, Florian Kolf

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