Lidl's US stores break European mold, says Bernstein: 'This is not a copy and paste approach'

In a July 7 briefing note, Bernstein analysts argued that the US stores – with a larger footprint (20,000 vs 10,000 square feet), larger range (up to 4,000 skus vs 1,000-1,500 skus) with a greater emphasis on organic, locally-sourced and free-from products, higher-traffic locations and higher-quality fixtures and fittings (timber) – cost more to operate. 

“Better locations and shinier, larger boxes​ [with glass walls and high ceilings] cost more money," ​said the report. "Larger ranges drive operational costs. Slower selling quality/premium ranges have less buying-scale opportunities. Lidl has kept its European pricing (i.e., matching Aldi locally) but added costs. At first sight that seems unsustainable from a profitability point of view.”​

The report – which noted that Lidl’s new US stores also feature craft beers, premium wines, fresh bakery and sampling stations (although you still have to bag your own groceries and retail ready packaging dominates) - added: “Lidl's US proposition has a remarkable emphasis on quality and convenience instead of just focusing on value. In doing so, Lidl breaks the European mold.”​

Lidl is cheaper than Walmart on private label, but more expensive on some brands​

On price, an initial analysis suggests that Lidl is not delivering price leadership on branded products compared to Walmart, while the latter is “materially cheaper​” than Lidl on staples such as eggs and bananas, said the Bernstein report. However, Lidl is typically around 13% cheaper than Walmart on private label (which accounts for 90% of the assortment), it claimed.

“The innovation for the market seems as much about quality food ranges and quick/convenient shopping process.”​

As for promotional dynamics, the new Lidl stores – which have a different layout to their European counterparts, with fresh produce at the entrance - have adopted everyday low pricing (EDLP) but also offer weekly ‘Fresh 5’ deals on produce, Treasure Hunt style deals on non-food (when it’s gone it’s gone); and themed weeks (eg. Spanish week) with deals on relevant products.

Private label strategy differs vs UK stores​

One notable difference in approach is Lidl's decision to stick to functional product descriptions for much of its private label portfolio (eg. cornflakes) as opposed to creating discount brands (eg, Crownfield cornflakes in the UK), added Bernstein.

 “All those amendments clearly indicate that this not a copy-paste approach to Lidl's US market entry. All the changes made to the US model point towards higher costs and a step away from the hard discount model as we know it in Europe.”​

A Lidl spokesman told FoodNavigator-USA: "We don't release specific sales or SKU figures. However, I can tell you that we are very pleased with how our customers have taken to our stores, and we're proud to be serving them every day."​

Asked about pricing, he said: "We are committed to delivering the highest quality products at the lowest possible prices every single day. Market prices vary daily, but we are diligent about our commitment, not only with our private label, which encompasses about 90% of our assortment, but across the board. A number of studies emerging reflect this."​

What's the size of the prize?

Lidl’s plan is to open 100 stores over the next 12 months and should this rate continue (100 stores/year) that would mean around 630 stores by the end of 2023.

If you multiply $16m [what Kantar Retail believes a mature Lidl store could generate per year] by 630 you get $10.08bn, but as not all of those stores will be fully mature and therefore won’t be 100% productive, Kantar predicts that Lidl could be generating annual sales of around $8.8bn in 2023.

Like rival ALDI, Lidl is appealing to the mid-market shopper, despite its discounting credentials, and offers organic and gluten-free options, and private label products without certified synthetic colors, trans fats, or added MSG.