Lidl’s 2014 New Year’s Resolution: Move Away From Hard Discounting

Sales at Schwarz’s discounter chain Lidl increased strongly in 2013 by 6% in actual value terms, with the retailer benefiting from the gloomy economic climate in Western Europe. This growth was also due to the retailer’s continued shift away from hard discounting over the past year as it aims to attract new consumers and increase margins thanks to a higher average ticket.

Consumers Have Changed Their Perception of Lidl…

In a number of markets, consumer perception of the brand changed over the review period. Price-conscious consumers who started shopping at discounters during the economic downturn continue to visit discounters regularly as they have left behind preconceived ideas and accepted these retailers’ products.

UK consumers shopped even more than usual at Lidl over Christmas due to generally being more indulgent during festive periods, with this being a sign that they increasingly trust Lidl’s offer. This is also thanks to Lidl’s more diverse product range, including its seasonal Deluxe line, which offers products such as reindeer leg steaks, scallops and quail over the Christmas period, highlighting an increase in the quality of its products.

 … Thanks to a Huge Change in Strategy

As the boundaries between grocery formats become increasingly blurred, competition from supermarkets and hypermarkets is intensifying, in particular those with a greater focus on economy private label products, such as Asda in the UK or Leclerc in France. This has also contributed to Lidl’s shift towards soft discounting in its mature Western European markets. In order to remain competitive, Schwarz has continued to modernise Lidl stores and improve the retailer’s product offer so as to include a wider range of fresh products and in-store bakeries.

Lidl has recently made a particularly strong announcement about its strategic shift in France. Although the discounter’s sales witnessed growth over the review period as it benefited from the poor economic climate in the country, its brand image is ‘disastrous’ in France, according to a spokesman. By changing Lidl’s positioning, Schwarz therefore aims to further broaden its customer base in the French market.

As Discounters’ Offer Becomes Blurred, Innovation and Communication are Key

Schwarz is not the only discounter to shift towards soft discounting. Dia, with its new Dia Fresh outlets in France and Spain, focuses its offer on fresh products, while stores also include bakeries. Aldi, although lagging slightly behind its competitors in terms of this shift, is also aiming at increasing its range of healthy food products, particularly in the US, adding more products to its Fit & Active and Simply Nature ranges.

Innovation and increased communication are therefore essential for Schwarz. In 2013, the company launched a number of successful initiatives to promote Lidl’s more ‘gourmet’ positioning, including a pop-up restaurant in Sweden serving a taster menu from a two-star Michelin chef using Lidl’s products. Aldi also emphasised its healthier positioning in stores through its healthy tills programme, removing chocolate confectionery products from its checkouts and replacing them with healthier options in many countries including France and the UK.

An Offer Tailored to Store Location

Lidl’s shift towards soft discounting should boost its store visit frequency. If consumers are able to find all they need at the discounter, they will be more likely to use Lidl as a one-stop-shop rather than a top-up store, as has been the case historically. However, while Lidl could attract new consumers, it could also alienate its core customers as this strategy may dilute its brand image at the same time. In addition, the presence of a bakery and a larger product range to include brands and higher quality private label could ultimately affect profitability due to higher costs.

If Schwarz can bear the additional logistics costs, it could offer two store concepts according to the store location’s demography – focusing more on a hard discount offer in lower income areas and on a soft discount offer in areas with mid- to high-income consumers. As a rule, the bigger a retailer becomes, the more sophisticated it needs to be, in particular in mature markets. This two-store concept would therefore follow the company’s development and support its future expansion plans.