Discount grocers have been in the spotlight throughout the credit crunch as belt-tightening shoppers of all demographic types have picked up on their prices and quality.
While the discount sector as a whole is growing, Aldi has bagged most of the limelight and apparently got under the skin of mainstream grocers such as Tesco, which have both subsequently retaliated aggressively.
But Aldi's rival Lidl is having just as big an impact on the UK grocery scene. While Aldi has found its voice in the consumer downturn, the latter has so far remained tight-lipped. But now Lidl has broken its silence and, in a rare interview, UK director Martin Bailie spoke exclusively to Retail Week about the grocer's plans in this country and the impact of the credit crunch.
Lidl may not have been trumpeting its strengths, but it is no lesser a force to be reckoned with than Aldi. In fact, with more than 9,000 stores across Europe – the largest retailer on the continent in terms of store numbers – some believe Lidl is a much bigger threat to the UK's mainstream grocers.
Walking around Lidl's Leatherhead store in Surrey, it is easy to see the differences from rival Aldi. Lidl has 1,600 products, including 200 branded products, while Aldi has a range of 1,200 own-brand products and stocks no branded products.
"Own-brands are Lidl's future, but we believe branded products complement our range," says Bailie. "If a customer comes to us for the first time, they will be more comfortable seeing some brands they know. At some point in the Lidl shop, customers will swap to our own-brands, but it's important to us that they have the choice of both."
The branded products also provide a benchmark for Lidl. Bailie points out that the grocer's own-label products are rigorously tested against their branded counterparts, which "many exceed and if not match".
"Customers may not have heard of our W5 washing powder, for example," says Bailie. "But they will see that there is around a £2 price difference between that and Ariel or whatever the brand that sits next to it is and they will try it. When they do, they see that the quality matches that of the brand and wonder why they ever paid more."
Room for more
Unlike Aldi, which will not extend its range beyond 1,200 products, Lidl is open to adding more lines. In the past three years, the retailer has increased its range from 900 to 1,600 products. "The growth will never be as significant as in the last three years again, but we don't think we have peaked at 1,600 either," says Bailie.
Any new product should add something different, he maintains. "We are a deep discounter and need to ensure the best quality and price," says Bailie. "We will never turn into a Tesco or Morrisons as there are significant benefits to being a discounter, but we will consider new products if they add something."
Quality is a big factor. Lidl's economies of scale means it can "source anything", says Bailie, and it will ensure the products come from their own "centres of excellence". He points to pasta as an example. "Our pasta range comes from Italy because we believe the best pasta comes from there," he says.
Lidl also sources from the UK. About 90 per cent of its meat and poultry is from the UK and Ireland and, when in season, many of its fruit and vegetables are British. "It's not all about pan-European buying; we have to look at what UK customers want," says Bailie.
Unlike Aldi, Lidl also offers various price cuts on products in stores. Bailie points to a promotional sign showing 70 per cent off all fruit and vegetables. "You would not find a promotion like that in any other retailer in the UK," says Bailie. "That again is an illustration of our buying power."
Bailie admits that Lidl would not be able to offer a full grocery shop, but says: "We are the closest to a one-stop shop in terms of the discounters and that is something that really differentiates us in our sector."
Apart from new products, the past three years have brought considerable change at Lidl. "We don't want to become a Tesco overnight, but we need to be respectful that what the UK wants is different to that of Germany," says Bailie. "We came from the stack it high, sell it cheap ethos 14 years ago to really thinking about what the UK consumer wants. We sat down and decided what we needed to change."
Bailie points out the store environment is "a lot better" than it was five years ago – there are more shelves to make shopping easier and the range has been built around what UK consumers want. "The concept we have now is a lot more pleasing to a new customer who is used to shopping in a mainstream supermarket," he says.
Lidl has also made serious inroads into what Bailie calls "giving something back". Many of its products now have the stamp of approval from organisations such as the Marine Stewardship Council and the Forest Stewardship Council.
The Leatherhead store is an example of what Lidl wants to achieve in future. The store has underground heating, which Bailie says saves about 8,000 cubic m of CO2 per year. "Not every store is capable of having underground heating, but this is what we are trying to do," he says.
While Bailie says Lidl will adapt further over the coming years, the decisions the retailer made three years ago has meant that the business is in good shape for the influx of customers drawn in by the credit crunch.
He says that pre-credit crunch, Lidl won Best Value for Money Retailer in the Which? 2008 awards, of which he says: "When you consider we are a minnow in terms of market share, it is a massive accolade." Many of its individual products have won awards too – out of its wines and spirits range, for example, 12 products are award winning.
"We can say 100 per cent that we have benefited from the credit crunch, but we believe the reason those new customers are coming back is because of the investment we have made in the business," says Bailie. "Our customer count is in like-for-like double digits and we are retaining that."
Lidl and proud
Bailie also points out the ABC1 demographic is a growth area and the average spend is higher. "10 years ago, we would never have seen a Mercedes or BMW in our car park and we do now," he says.
The growth in ABC1s shows the grocer has also quashed any stigma in the UK, says Bailie. "Like other discounters, there used to be a stigma attached to our brand, but we believe that this has all but disappeared now – around 99.9 per cent of it has gone."
He believes that while it is not pleasant to say Lidl is profiting from the credit crunch, it is an opportunity to show new customers what it has to offer. "We are offering customers a place where they can ride out the credit crunch without compromising on quality," he says.
As customers are "counting the pennies", Bailie believes Tesco's launch of its Discounter range – which is a reaction to the grocer losing some customers to discounters – is a good thing for consumers.
"You can only take your hat off to someone who has 30 per cent market share," says Bailie. "We need to step aside and think, while the move is naturally directed at somebody, it can only be good for the consumer. We have to be somewhat flattered, but also very respectful."
He adds: "We are not in the business of shouting down any of our competition. It is a competitive environment and we have the utmost respect for our competition. We prefer to focus on what is right for the consumer."
Bailie is confident that consumers will still shop at multiple stores in their search for a bargain. He says: "The demand and desire for Lidl is huge." Alongside price, Bailie says part of Lidl's attraction is excitement and an element of newness, in both food and non-food. "We are able to slash the prices of certain products to create a buzz and obviously we have our weekly non-food offers," he says. "While other retailers are feeling a slowdown in non-food as they class the range as luxury spend, at our prices they aren't seen as a luxury so we are still showing strong growth."
Tellingly, shoppers are still queuing outside Lidl when the weekly non-food offers change. "Many other retailers offer food and non-food – yet shoppers queue for Lidl. That's the buzz we will work hard to keep."
That "buzz" is expanding across the UK. Lidl has 470 stores at present and will exceed 500 by the end of the year. Aldi has 430, meaning Lidl is the "UK's biggest discounter in terms of store numbers", says Bailie.
Lidl has worked hard to appeal to all UK consumers. As Bailie says: "While we don't want to become a mainstream grocer, we want to appeal to the mainstream shoppers." Judging by Lidl's success so far, it may be the case that it's the quiet ones you need to watch out for.
Christmas at Lidl
Lidl will be able to offer a luxury Christmas meal for a family of four for under £20, says Lidl UK director Martin Bailie.
Products in stores already include marzipan stollen at £1.89 for 500g, panettone at £3.49 for 1kg, luxury Christmas pudding at 750g for £2.99 and decorated chocolate Santas at £1.79 for 200g.
Hitting the stores later this month will be products including turkey, langoustine, lobster, pheasant, quail, goose and duck. "Christmas will be affordable at Lidl," says Bailie. "And we don't just offer turkeys – we offer luxury for all at a price that is affordable."
Origins
Lidl – full name Lidl Stiftung & Co KG – was founded in the 1930s by the Schwarz family
The holding company Schwarz also owns store chains Handelshof and Kaufland
The first Lidl stores opened in the 1970s
The Schwarz family bought the rights to the name Lidl from a retired teacher, called Ludwig Lidl, for 1,000 marks because they felt they couldn't call the stores Schwarz Markt (meaning Black Market)
Lidl launched in the UK in 1994
Lidl now has more than 9,000 stores in 23 countries
