Discount transformation Glasnost at Lidl

Germany's discount supermarket giant Lidl wants to shake its penny-pinching image. The retailer plans not to take on arch-rival Aldi, upscale supermarkets – and the United States.
Lidl going up-scale? A Lidl-Subway crossover is one of the means supposed to bring an image change.

Germany's no-frills supermarket chain Lidl, a leader in the discount sector that this country has pioneered around the world, is preparing to revamp its shops – and turn its low-cost strategy on its head.

Lidl's 3,300 stores in Germany are being overhauled this month. They will no longer be small and poky but larger stores of up to 1,300 square meters, or 14,000 square feet, that will be a good deal fancier, complete with professional photos of bread and meat worthy of a food magazine hanging on the walls.

This classier image is part of Lidl's move to re-position itself from ultra-cheap discounter to a supermarket that's all about higher quality – and higher prices.

The overhaul is also intended to pave the way for entry into the retail market in the United States. Aldi, Lidl's German rival and the global leader in the discount space, has already set up shop there.

A new TV ad campaign and an online platform with information on food will support Lidl's image overhaul, which could be described as a "discount 2.0 model."

It is a huge step for a chain famous for low-cost groceries.

Discount supermarkets Lidl and Aldi, which is also updating its image, have long been symbols of Germany's post-war economic miracle, bringing cheap food to the masses and serving as a model for discount retailers around the world. In the United Kingdom, both chains are proving a serious challenge to Tesco, for example.

A classier ambiance is supposed to symbolize Lidl’s repositioning: The retail giant wants to leave the image of the ultra-cheap discounter behind. Matthias Queck,, industry expert

The biggest change may be the open communications strategy taken by Lidl's management.

Based in the small Swabian town of Neckarsulm since the 1970s, the company was long a typically secretive, closed German company, transparent as a box of cereal. A series of scandals worsened its reputation; it came to be seen as stingy and aggressive following a series of scandals in the early 2000s. Such a reticent style of communication is not uncommon among Germany's privately-held, family-owned firms.

Now, Lidl Germany chief, Matthias Raimund, and the head of purchasing, Christoph Pohl, are trying to counter that tradition and openly talk about their new strategy.

“Glasnost in Neckarsulm,” is how one former Lidl manager described the charm offensive, referring to the policy reforms that led to the democratizing of the former Soviet Union.

Mr. Raimund explained why it makes sense for Lidl to change its positioning. “The days of wild expansion of retail space across Germany are gone,” he said. “Now, growth has to be generated by stores we already have.”

Lidl is present almost throughout Germany, so the current stores will have to be revamped in order to attract new customers.

122 Lidl-01



Management is specifically targeting customers who would only tend to buy basic items from Lidl, such as canned goods, rice or sugar, but turn to premium retailers like Rewe or Edeka, for higher quality shopping.

To change that, Lidl is giving customers a new reason to shop at its stores, beyond low prices. Fully-automated ovens bake fresh bread and croissants several times a day, the fruit and vegetable shelves sport regional produce, the range of meat and fish has grown, and the wine section offers many Bordeaux and Barolo bottles for well beyond €10, or $11.4.

What has this still got to do with a discounter?

Not a lot, say experts such as Matthias Queck, former analyst with the trade magazine Planet Retail. “In the long run, there will be a discounter and classic supermarket crossover. Lidl will become more like Rewe and Edeka,” said Mr. Queck.

The pricing is still crucial, said Lidl Germany chief Mr. Raimund. The traditional virtues of its no-frills shops – efficiency and productivity – are still part of the DNA of the supermarket chain.  “But overall, the term ‘discounter’ doesn’t fully capture the essence of our company,” he said.

A few years ago, anyone who didn't support the low-cost doctrine would have been banned on the spot from the Lidl headquarters. Ever since founder Dieter Schwarz opened the first discount store in 1973, Lidl's agressive low prices have been a recipe for success.

 

Quelle: Pressebild
</a> Lidl wants to win wine lovers, and has hired professional sommeliers.
(Source: Pressebild)

 

And success wasn’t restricted to Germany. Together with its sister company, the discount chain Kaufland, Lidl has conquered Europe. Under the leadership of Mr. Schwarz’ successor and confidant, Klaus Gehrig, the group has opened 11,000 shops with 335,000 employees all across the continent.

The large-scale expansion has caused revenues to skyrocket over the past 10 years. “Lidl saw average annual growth rates of 7.4 percent between 2008 and 2013,” said industry expert Mr. Queck. Only arch-rival Aldi Süd – the southern, larger part of the Aldi empire – grew even faster by 7.8 percent per year, according to Planet Retail data.

And the low-price retailer has big goals for the future. For 2018, Mr. Gehrig has targeted the United States. Preparations to cross the Atlantic are underway: Based in Arlington, Virginia, a team of 100 employees is already sounding out the market and scouting properties. Mr. Gehring’s plan is to open 100 Lidl stores at once to sound the bell for the company’s U.S. adventure.

Lidl's arch-enemy Aldi, already a player in the American market, is working on defending its foothold in the discount sector. The company plans to up the number of stores in the United States from currently 1,400 to about 2,000 by 2018.

Changing its image will prove a tall order. High quality, transparency and trust are not exactly traits associated with Lidl in Germany.

The rivalry between the two havens for stingy shoppers goes way back. In Germany, the highly competitive discount grocer market had been a carefully balanced ecosystem for many years.

While minimalist front-runner Aldi exclusively bet on its own store brands, Lidl appealed to customers by putting a limited number of established brands, such as Coca-Cola or Nutella, on the shelves. But after a while, Aldi too discovered the lure of branded goods, and added Nivea deodorants and Ferrero chocolates to its product range.

When the Aldi management suddenly started offering Coca-Cola, a price war broke out between the two chains. Lidl went as far as banishing the American soft drink from its shelves and finally had to backpedal after sales dropped.

In the latest episode of the competition between the two, both seem to be heavily betting on polishing up their no-frills image. The nuanced differences between Aldi and Lidl, already mild at best in the past, seem to have become completely lost now.

Both discounters have introduced freshly baked goods and their own premium brands that are virtually indistinguishable from each other.

 

Aldi and Lidl-01



 

A fresh attempt to get ahead of the archenemy might be Lidl’s new TV ad campaign that is set to start later in February. By contrast Aldi completely refrains from TV advertisements.

Simultaneously with its TV campaign, Lidl plans to launch an online platform where customers can track the origin of their schnitzel and ask questions about the produce. The goal, according to chief purchaser Mr. Pohl, is “to appeal to new target groups who so far have viewed discounters critically.”

It is yet another measure designed to shake the image of aggressive stinginess, and to project high quality and build consumer trust.

But changing this image will prove a tall order. High quality, transparency and trust are not exactly traits associated with Lidl in Germany.

On the contrary: In 2004, the trade union Verdi published accounts of harassment and regulatory zeal within the company. Four years later, in 2008, German magazine Stern reported on the surveillance methods used by Lidl to monitor employees’ every move. In some stores, CCTV cameras where installed, and private detectives meticulously logged staff’s bathroom breaks and noted whom they suspected to be having an affair with a coworker.

A storm of indignation followed, and Lidl earned a reputation as a scandalous racketeer that has stuck with the company ever since.

 

Quelle: dpa
The only way is up.
(Source: dpa)

 

 

“Of course the 2008 headlines left us shaken,” said Mr. Raimund of Lidl Germany. His predecessor, Frank-Michael Mros, had to leave the company after the surveillance campaign became public.

Since then, Mr. Raimund insisted that lots has changed at Lidl. The discounter introduced a company-wide minimum wage of €11 per hour, employees clock their time precisely to the minute. The labor turnover rate is lower and the data protection standards are higher than in the rest of the sector, according to Mr. Raimund.

So is everything splendid now within the Lidl group? That’s a stretch in the eyes of Ulrich Dalibor, who is responsible for retail at the Verdi trade union. Worker councils representing employees, for example, are still rare at Lidl, he said. But even the Verdi unionist had to admit that quite a lot has changed internally following the public pressure.

Video: Lidl's UK ad campaign to reposition itself as a high-quality grocer.

Management still has three years left to clean up the chain’s image in the home market before the expensive and exhausting push into the United States kicks into gear. That also gives Lidl some time to complete its repositioning and leap out of the no-frills segment into a higher-quality category of retailer.

But whether or not the move will lure enough new customers into the shops remains to be seen. An analysis by Nuremberg-based market research firm GfK found that other discounters’ prior attempts to attack the classic supermarkets have had little success.

“Discounters over the past years have upped their appeal by adding to their product range,” the GfK report reads. “But so far they have not attracted the crowds with these moves.”

Lidl will be starting its new attempt to convince the crowds any day now.

 

A version of this article first appeared in weekly magazine WirtschaftsWoche. To contact the authors: [email protected] and [email protected].