February 5, 2018

Why Lidl should stay in the USA

A Lidl store in the US (photo: Lidl)
Back to the roots: Lidl's "glass palaces" on the East Coast of America could soon be succeeded by a more homely discount format
It's intriguing. Klaus Gehrig, the Big Boss of parent company Schwarz Group, has indicated to the German media that Lidl is facing strong headwinds in America.

The discount giant is working "flat out" to modify the store concept it launched in Virginia last June. Sales surfaces are to be reduced from around 2,000m² to 1,400m² and expansion slowed. Lidl's US stores are also likely to more strongly reflect the solid discount virtues which have led to success in 30-odd European countries.

All this would be perfectly normal for a Plc that has already invested an estimated €2bn in a land where many top international retailers have come a cropper. It would be called giving guidance to shareholders. But Lidl is a privately-run company. So why has Herr Gehrig sounded the alarm bell?

One can only speculate. Is he trying to warn us that Lidl could exit the market at some later stage? This was immediately contradicted by head office in Neckarsulm: "No, we will not leave the USA under any circumstances!" Despite this unambiguous reply, there are still those who see disappointing sales and growing costs as ominous signs on the horizon.

But Lidl is one of the world's largest retailers and can shoulder virtually any investment required. Also, if you look at its expansion strategy in the US to date, the no-frills retailer has never even tried to consolidate its store network.

Lidl on the East Coast of the USA (source: LZ Grafik)
Huge distances: Lidl has opened only 50 US stores in no less than six states on the East Coast. New York State will be added later this year. The company is also said to be scouting for sites in Philadelphia, Ohio and, in particular, Texas
Instead, its 50 outlets as per next week have been deliberately stretched along the East Coast from Georgia to New Jersey. Later on this year, Lidl will become a tenant in one of New York's most successful shopping centres, the Staten Island Mall, marking entry into a seventh US state.

According to Planned Grocery, Lidl is building 23 outlets to open this year. 53 other projects have been signed with an 80 to 90 per cent probability of completion within the next twelve to 24 months. Potential interest has also been signalled in a further 56 sites. When approached by Lebensmittel Zeitung, Lidl HQ declined to either confirm or deny these figures.

But whatever the number, this doesn't seem like a retailer about to take its foot off the accelerator. Of course there may well have been a lot of stores in the pipeline before the decision to slow the rate of expansion was made. But why then is Lidl continuing to advertise heavily for its special offers, staff and sites?

Given these conflicting signals, there has understandably been much trade speculation as to Gehrig's real motive for lowering expectations. Of course the conspiracy theorists have had a field day. Some believe that it is all a clever ploy to wrong-foot the competition into believing that the discounter is running out of steam.

Pecking order

Others speculate that Gehrig's words are the aftermath of an internal power struggle. His former protégé, Sven Seidl, was given the chop early last year. It is said that Gehrig gave the young, smart and cosmopolitan Seidl a huge amount of leeway and virtually carte blanche on the timing of US entry, which Gehrig had postponed several times since the turn of the century.

Since Seidl's surprise departure, the company has reversed many of the former high-flyer's plans from E-Commerce to the building of more elaborate stores. Gehrig has allegedly criticised the latter as "glass palaces".

Those who speculate in this direction paint Gehrig as a hands-on controller obsessed with detail. But they also portray him as being totally unlike the oily managers we have grown accustomed to at major publicly-quoted retailers.

Those who claim to know him compare his spirit to an artisan from some homely German village with both feet firmly on the ground. They see him as someone who thrives within his own culture, but who feels totally out-of-place when outside of it.

Gehrig, they say, is a person who needs to see every store with his own eyes and to speak with those he meets in his own tongue. For this reason it is alleged that he generally appoints native Germans as country managers so that he can converse with them properly when he comes to inspect.

Schwarz Group boss Klaus Gehrig (photo: Schwarz Gruppe)
Schwarz Gruppe
Don't be shy: Schwarz Group boss Klaus Gehrig poses for the camera
But Gehrig is also said to fear flying and finds it hard to endure even the short-haul flights required to tour Lidl's European empire. If this is true, then operations in the US must be anathema to him. He can only visit the stores by subjecting himself to long-haul flights. And on arrival, he is met by a team of foreigners, including US chief Brendan Proctor, installed by cosmopolitan Sven Seidl.

But looking beyond the psychogram of a manager, who has enjoyed the seemingly unlimited trust of Schwarz Group founder Dieter Schwarz for decades, what choices does Gehrig have? Withdrawal from the US would obviously be extremely expensive and a huge loss of face. Tesco still bears the scars of its failed American venture.

And where else could Lidl grow, if not in the US? Expansion to somewhere like Moldavia in Europe is possible, but hardly an option. And who would willingly follow Globus and Metro C&C into the Russian market with all its present difficulties? Physical stores in China perhaps? God forbid, they speak Chinese there.

Meanwhile, US expert Bill Bishop believes that Lidl's current problems on the East Coast aren't due to a faulty store concept. He points to local competitors having lowered their prices in an attempt to scare away the foreign intruder. The boss of Brick Meets Click also believes that many of Lidl's US supermarket rivals will not be able to sustain their low prices for any length of time. He therefore advises the company to stay put and to stick to its guns.

Bishop is right: It may have been a hard slog for more than 40 years, but Aldi has proved that discount "made in Germany" can be successful in America. So hang on Lidl, don't go, it will only take you a few decades, unless of course you buy Food Lion, Save-A-Lot & Co...

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

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Lebensmittel Zeitung with digital sister (photo: LZ)
photo: LZ
Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital
Read in German: 'Lidl setzt US-Konkurrenz noch unter Druck' by international editor Mike Dawson on page 8 of
Lebensmittel Zeitung, no. 6, 09.02.2018

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  1. Hans-Joachim Stickel
    Created 9 February, 2018 22:48 | Permanent link

    Business Opportunity for German Discounters in Brazil

    I wish Lidl would come to Brazil. Living in Belo Horizonte, a metropolitan area of 3.5m inhabitants, I'm sick of the French Carrefour hypermarkets; boring, Uncle Sam Walmart; and sleepy local chains such as Supernosso whose stores last experienced a fresh coat of paint 30 years ago; as well as 'stuck-in-the-middle' Mart Plus and Supermercados BH.

    Lately, a Spaniard called "Dias" has been conquerIng the market, providing a taste of German-style discount. However, Lidl and Aldi would sweep them all away in no time. Please come and save me, these supermarkets are ripping me off!

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