Lidl & Kaufland: Hard Discounters 2012

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Schwarz Gruppe is not just the driving force behind Lidl’s remarkable success story over recent years, but is also behind Kaufland – currently the most successful hypermarket business in the EU. The Kaufland operation is separately run from Lidl but managed according to identical, strict discount principles and the compact hypermarket format’s performance in Germany and CEE is outstanding. The reason behind Schwarz’s success is a relentless focus on price and slow and steady adaptation to changed shopper needs paired with first class execution.

Whereas Kaufland demonstrates that strong growth is possible for a hypermarket format, even when most competitors are struggling against the tough macro economic backdrop, Lidl has transformed itself into the leading European retailer with the highest store count in the largest number of countries of the EU. ResearchFarm predicts that with the combined turnover of Lidl and Kaufland, Schwarz will also become the leading EU retailer by sales generated in the EU in 2013, overtaking Tesco, Metro Group and Carrefour. It will be a closely fought race though.

In France, Lidl’s most important foreign market, the discount format will see a major update of the formula. Over coming months management will import Lidl’s latest cutting edge thinking from other markets, upgrade the in store presentation, extend the branded ranges and deepen the crucial focus on fresh produce. Lidl’s convenience outlet is an adaptation of the traditional hard discount format, featuring a number of innovations – and is characterised by the absence of non food. That said, we believe that non food represents a major opportunity for Lidl, as Germany’s transactional online operations showcasing a huge branded non food presence can be rolled out internationally.

While much change is afoot at Lidl, the core strength will remain the private label proposition and as such there will be a clear limit for brands in store. As the first mover Lidl serves as a clear template for Aldi. Past experience at Lidl, ranging from Super Saturdays, outstanding footfall generation to the innovative promotional stance – and the gentle move away from EDLP suggests what the future could look like at Aldi and crucially what probably will not work.

Lidl is also further ahead than Aldi in terms of private label segmentation and unlike its rival in vertical integration, as these have become key strategic objectives for the retailer. For Schwarz vertical integration also means optimising the supply chain and utilising spare capacity efficiently. Schwarz’ supply chain optimisation, bundling  smaller suppliers’ deliveries has really driven down costs and the initiative is now also copied by Aldi.

Schwarz now needs to prepare for the attention its new status as the EU’s biggest retailer will bring. We believe that focusing on making its business future proof – by securing supply through vertical integration and by attracting top talent and shop floor staff through offering better compensation than much of the competition will be the first steps on its exciting journey over the coming years.

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