Less is More Lidl remains hopeful as it alters US strategy

After some missteps in its first year, the discount supermarket chain Lidl is switching its focus to smaller, more centrally located stores.

Discount supermarket chain Lidl is buckling down to make a proper go of expanding in the United States, despite some missteps since it launched its first store there a year ago. Under new US management, the chain will focus on smaller stores, fewer products, and more central locations.

Although it fell short of its goal to open 100 stores in the first year – it has only 53 – the chain is encouraged by favorable market surveys that show it is finding acceptance, especially among younger consumers in the 18 to 24 age bracket.

Lidl trails German rival Aldi, which already has 1,600 stores in the US, by so much that it may never catch up. But those marketing surveys give Lidl higher grades in everything from freshness of products, to quality, service and price. Half of Aldi’s customers say they regularly shop at the competition.

The Wall Street Journal mentions Aldi and Lidl in the same breath this week in an article reporting how the German discounters are squeezing regional US chains. The two leading US chains, Walmart and Kroger, can fight back, the Journal says, but the encroachment of the German discounters will limit their growth.

14 p22 Slow expansion-01

Lidl ousted its US head Brendan Proctor in March and replaced him with Johannes Fieber last month. Now Mr. Fieber's new strategy is becoming clear. Instead of larger stores with 3,300 square meters (35,500 square feet), the company will open stores with only 1,400 square meters. Instead of building huge glass palaces in out-of-the-way places, Lidl will rent existing buildings in more central locations. It is also reducing the number of items sold, and changing them less often – as this led to confusion among customers.

The good news for Lidl is that 71 percent of customers 18 to 24 years old shop more often than twice a month at the stores, according to a survey by consulting firm Oliver Wyman. Some 84 percent now spend more than $20 a visit, compared with 58 percent when Lidl first launched, indicating that those first drawn by curiosity have become regular customers.

Lidl has a hard row to hoe

The company doesn’t expect to turn a profit in the US for another five years. The total of the supermarket's investment and startup losses is almost certain to exceed the $2 billion originally earmarked.

Partly in an effort to rationalize costs, the chain will focus on the East Coast for its expansion, to get better use out of its existing distribution centers. “Each center can supply around a hundred stores,” said Danielle Dolinsky, a market analyst at Planet Retail RNG . “They need a lot more stores to be profitable.”

So Lidl is abandoning its plan to build a big, new store in Decatur, Alabama. Instead, the chain, which has its US headquarters in Arlington, Virginia, will focus its expansion on Maryland, Pennsylvania and New York, which can all be served by a new distribution center in Cecil County, Maryland, near the I-95 traffic artery. A Lidl spokesman said the company plans to open several stores in the East Coast states in the course of the year, but declined to say how many and when.

“After one year on the market, it is evident that Lidl has been very successful in convincing American consumers of its concept,” said George Faigen at the Oliver Wyman consulting firm. This retail expert believes Lidl has a good chance to continue winning market share. “The fact that Lidl, despite its limited range of products, is already regarded as superior by consumers in such a short time should make competitors anxious,” he said.

Florian Kolf heads up retail coverage for Handelsblatt. Darrell Delamaide is an editor for Handelsblatt Global in Washington, DC. To contact the authors: [email protected] and [email protected].