Lidl all set to go in Latvia

Pack the sledge, harness the reindeer, and head for Latvia, chaps! This, or something like it, could have been the latest order of the day issued by Klaus Gehrig, big boss at mega-discounter Schwarz Group.

Germany's largest retailer finished recruiting a first wave of store staff at the end of December. Trade experts believe that a dozen of its 'Lidl' stores will open within the next few weeks. The final kick-off date will, apparently, depend on what the situation is regarding the Covid pandemic. So, let's have a look at what this value merchant is up to in the Baltic.

Lidl had originally planned to enter Latvia in 2019. But business boomed so much in neighbouring Lithuania that it was decided to postpone entry in order to do so on a more ambitious footing. A distribution centre was therefore built in the capital city of Riga in July last year at a cost of €55m.

The 51,000m² site, which will open next week, also houses corporate HQ and will serve as a logistics hub for Estonia as well. (It is claimed by the locals that the discounter leaves bales of hay outside for the reindeer).

In terms of organization, Lidl Latvia belongs to the limited holding company CE-Beteiligungs-GmbH which also owns Lidl Lithuania. The management of Lidl Latvia are also responsible for expansion into Estonia.

Thriving in Lithuania

Meanwhile, Lidl continues to thrive next door in Lithuania where national sales density per square metre of floor space is the second highest within Schwarz Group's vast European empire. Only shooting star Lidl Serbia achieves a higher productivity.

In an interview with our newspaper below, Petras Cepkauskas, Food Division Manager of market research company PricerLT Lithuania, sees several reasons for this success.

These include the fact that there are few discounters in the Baltic region. Also, local retailers have never really developed a strong own label proposition with house brands still only accounting for around 15 per cent of national food sales.

Relatively high wages in the region mean that consumers are more interested in quality than price. At the same time, food is considerably more expensive than in neighbouring Poland.

Lidl has therefore positioned itself as a discount supermarket with high-quality own label products in Lithuania. This strategy has brought the company double-digit growth throughout eastern Europe.

Lidl the local lad

Lidl is already advertising a standard assortment of 3,100 lines on its Latvian website. This is a surprisingly large number when one remembers that the company still only offers 1,600 lines in the most recent European country it has entered, namely, Serbia. 

Mr Cepkauskas doesn't believe that Lidl can play much on its German roots in Latvia, which is perhaps why the company emphasises cooperation with local producers wherever it operates.

As in Bulgaria and Hungary, Lidl has created a local umbrella label for its own brands under the slogan 'Made in Lithuania'. This is duly emphasised via in-store advertising and weekly sales catalogues. Not a bad marketing effort in a country with less than three million inhabitants!

Unlike in the past, the value merchant doesn't seem to strive for absolute price leadership. Thus, Lidl often only comes second or third in PricerLT's monthly comparisons of 32 price fighter lines.

The Baltic scene

The retail scene in all three Baltic states is currently dominated by Lithuanian multi-format retailer Maxima and Swedish ICA Gruppen with its 'Rimi' and 'Aleja' stores. German retail giant Rewe also operates supermarkets under the 'iki' banner in Lithuania.

Generally, the retail formats run by the big retailers in the region are among the most modern in Europe and include both self-scanning areas and self-service checkouts. Their fresh produce expertise is also exemplary, especially where they have control over the whole supply chain.

 

Mr Cepkauskas, why is Lidl on such a roll in Lithuania?
Lidl's market positioning emphasizing quality, price and local products seems to work well in our country. Although market leader Maxima takes a lion's share of more than 33 per cent in organized grocery retailing, Lidl has almost effortlessly gained a foothold in the country.

Most competitors expected a hard discount approach and were taken by surprise when they got a modern sales concept focussing on fresh departments and local assortments instead. From this perspective, Lidl was the fox in the hen house.

Perhaps there were no other foxes around?
Other than Lidl, there are no discounters active in the Baltics. All earlier discount projects launched by domestic retailers such as Maxima, iki and Rimi were discontinued.

Competition levels are generally low. As a result, the own brand architecture of most retailers is often not even developed to a classic 3-tier level and the national private label share in grocery is still below 15 per cent.

At the same time, disposable income is continuously rising. Combined with a still comparatively high share of wallet of around 20 to 30 per cent for food, customers in this region don't look at the price as first shopping criterium. Nevertheless, Lithuanians are aware that price levels are quite high and duly welcome Lidl's low-price approach.

Perhaps this was why, Maxima price matched certain items with Biedronka or Lidl in Poland under the slogan 'Low price guarantee. Tested in Poland' a couple of years ago.

Is Lidl really the cheapest retailer in town?
According to Pricer Lithuania's market research, Lidl never has been the cheapest retailer as regards a basket of basic price entry items.

How else did Lidl become so successful in Lithuania?
Lidl's main USP is their extraordinarily clever marketing communication around local ranges. Lidl takes the biggest share of voice in advertising on the market. This has enabled it to become the second-most popular retailer in the country. Our research shows that around 25 per cent of their standard assortment comes from Lithuanian suppliers.

That's not necessarily a high figure. But Lidl got the message out that they had 'signed 100 contracts with local producers' even before these products were on the shelves. Also, their own umbrella private label 'Produced in Lithuania' creates a positive retailer brand image.

Given what they have achieved in Lithuania, how do you see Lidl's future development in the Baltic region?
In five years, I expect Lidl to be the second or third player in the Baltics with around 100 stores in Lithuania, 50 in Latvia, and 50 in Estonia.

LZ

Our German B2B newspaper, Lebensmittel Zeitung, in print & digital

Read in German: 'Lidl bereitet Start in Lettland vor' and 'Der Fuchs im Hühnerstall' by central & eastern Europe correspondent Sebastian Rennack on page 10 of Lebensmittel Zeitung, no. 3, 21.01.2020