January 31, 2014

Lidl puts Coke back on the shelf

Coca-Cola (photo: Coca-Cola)
The real thing: Lidl has quickly relisted Coke (photo: Coca-Cola)
Now that take long, did it? Only last week our newspaper reported that Lidl had delisted Coca-Cola.

Now the world knows that Germany's no. 2 hard discounter by sales will be selling Coca Cola Classic again in all its 3,300 local stores as from March.

The two giants still haven't completely composed their current differences, however, as the fate of Coke's other brands (Fanta, Sprite, Coca Cola Light and Zero) still has to be resolved.

The decision to take on an iconic US brand in a World Cup year when the retailer is on the verge of entering the States always looked odd. Given that even arch-rival Aldi felt obliged to list Coke last year, it seemed stranger still.

Now that Coke has been relisted, the whole affair looks like a skirmish in a larger power play that mighty Lidl has lost.

A field day for competitors

Certainly competitors had a brief field day. As Lidl scrambled to fill the gap by stocking up with Pepsi, German supermarket and hypermarket competitors bought Coca-Cola like mad.

Compromise always looked inevitable as the spat was set to hurt both parties.

Coca-Cola was surely less than pleased to have its brands excluded from the stores of a major national player and stood to lose around €150m in annual sales. Meanwhile, it is hard to judge how many Lidl customers began to shop elsewhere for the big, traffic-building brand taking their custom with them.

Like all quarrels, this one had a longer history. The Schwarz Group subsidiary was clearly peeved when Aldi listed Coke last year. Lidl then unleashed a price war using special offers, and most of Germany’s supermarket multiples jumped on the bandwagon.

Aldi, who demands Every Day Low Price leadership on its standard bottle sizes, tolerated this needling for a while. But eventually the discount colossus went nuclear and slashed the price of the 1.25-liter bottle from 99 to only 89 cents. It very much looks that Aldi was prepared to take a big hit on margin to teach the trade a lesson.

Meanwhile, it is estimated that matching Aldi’s new price alone has cost Lidl a double-figure million sum. Not surprisingly, Lidl's alleged demands for Coke to sponsor its special offers fell on deaf ears.

The final drop

However, the drop which finally caused the cup of discontent to overflow was undoubtedly a 2-per-cent price rise projected by Coke from the beginning of this year.

Lidl felt its arm strengthened by subsidiary MEG. This mineral water producer also has a licence to bottle for Pepsi which retails for around 40 cents a liter.

Lidl also tried to compensate by increasing own label production and listing Pepsi lemonade brands Mirinda and Schwipp-Schwapp.

These alternatives may have given Lidl more control on margin, but Pepsi was always a weaker alternative to Coke with far less pulling power and consumer "mind space".

Lidl has sent a warning shot across the bows of those brand manufacturers who may have been tempted to follow others who have recently negotiated a listing with Aldi.

But Coke has come out the winner of this bout though. After all, Carbonated Soft Drinks are an expandable category, and the low prices driven by the recent price war will only increase volume sold in the market.

Narcissus & the retailer

Are there any other conclusions that can be drawn from this recent ding-dong? Clearly listings, delistings and relistings are an annual ritual and a stock part of the trade. But it has always been hard for retailers with a narcissistic love affair for their own label to admit the power of global brands.

In this context one may recall the humbling experience of J. Sainsbury in the 1990's when customer discontent obliged the UK multiple to reduce its own label offer.

Perhaps retailers would do well to see each store shelf as a stage that needs a star performer. There might be room for some co-stars, but private label can often only play a subsidiary role.

Their métier is not unlike that of an impresario at an old-fashioned music hall trying to arrange the bill. The public may endure the YMCA choir and the miners' association brass band for a while, but only because they know that these are supporting acts for the star of the day or "les girls"!

Podcast microphone (photo: Gerhard Seybert-Fotolia)
(photo: Gerhard Seybert-Fotolia)

Podcast. Click arrow to listen to an audio version of the text:

Lebensmittel Zeitung print and digital (photo: LZ)
photo: LZ
Our German B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: by retail news editors Jan Mende, Hans-Jürgen Schulz & Manfred Vossen in 
Lebensmittel Zeitung, no.s 4 & 5, 24.01.2014 viz. 31.01.2014

German Retail Blog

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