Amazon’s purchase of Whole Foods has stolen all the industry headlines over the past few months. The blockbuster deal has competitors, analysts and consultants making bold predictions on where, when and how consumers will buy their food in the years ahead. However, one grocery story in recent months that hasn’t gotten a lot of press is the arrival to the United States of German hard discounter Lidl.
In June, it opened 10 stores along the east coast, has plans for 80 stores by the middle of 2018, and is on its way to establishing more than 600 locations in the next few years. Another German hard discounter, Aldi, has been in the United States for several years, with 1,600 stores. It has plans in place to spend $1.6 billion to expand and remodel 1,300 stores as well as to open an additional 400 stores by the end of 2018.
So, what’s the big deal? What’s the threat? The answer is quite simple. Between 2003 and 2013, Lidl and Aldi have grown to 20,000 stores in Europe from 8,000. In Germany, the two have about 50 per cent market share. In the UK, they continue to experience double-digit same-store sales growth. It is amazing how fast these two discounters have grown in such a short period of time. Over the past 40 years, Lidl has gone from zero stores to 10,000 in 26 European markets, with $84 billion in sales.
What does this all mean for Canada?
There has been no formal announcement from either company that it will be launching in Canada in the near future. In fact, several years ago, Lidl did come to Canada and set up an office in Mississauga. The company was hiring staff and exploring real-estate sites for stores. Much to everyone’s surprise, Lidl suddenly decided to close its office, lay off staff and delay its launch. Perhaps the company saw that it would be more beneficial to launch first in the US, since the country is less consolidated, with larger urban centres and a much denser population.
Also, the US is underdeveloped in discount relative to Canada, which has 40 percent of its grocery sales already going through discount stores. A US launch also provides Lidl the opportunity to define, explore and develop its human resource requirements, system capabilities, product sourcing and supply chain capabilities for the North American market. It makes more sense to gain a foothold in the US and establish its base business needs before it expands into Canada, which has a much smaller market, a more diverse population, and a more challenging geography that serves only 36 million people.
I think it is inevitable that either Aldi or Lidl will enter Canada. Others have tried and failed. However, both these retailers have a proven track record of not only being successful in almost all markets they have entered, but they have also turned the competition on its head and have gained significant market share. Their strategies are simple, cost effective and easy for the consumer to understand and adopt.
Here are some of the components of their model that makes them such a success:
- Limited assortment – fast movers only,
- Focus on everyday products rather than niche items,
- Right size store – 15-20,000 sq. ft. (about 30,000 sq. ft. in the US),
- Cost efficient – labour-saving tactics such as displaying product in their shipping containers as opposed to hand packing,
- Offer high-quality products at prices much cheaper than competitors (up to 50 per cent cheaper),
- Everyday low prices – with enticing use of promotions,
- High private-label penetration and SKU count,
- Tailors each store to the ethnicity and demographics of the trading area it serves, and
- High-quality prepared foods.
Food expenditures are one of the few ways consumers can control and influence the inflation in their household budget. This is why we have seen such a high degree of discount shopping, buying on promotion, ad matching, coupon usage and loyalty point redemptions amongst consumers. The trend toward discount and buying on deal isn’t abating. In fact, it continues to grow.
If someone were to ask me what the biggest threat to Canadian grocery retailers is, my answer would not be Amazon, but rather, the arrival of Aldi a Lidl in our markets. They have disrupted every market they have entered, and every grocery retailer should create a task force to examine the key elements of Lidl’s and Aldi’s programs that make them such a success. Incorporating some of their winning strategies into their own value propositions might not be a bad idea. In fact, it could make a lot of “cents”!
*Michael Marinangeli is a principal at MIDEB Consulting Inc. and a retailing veteran with more than 40 years of experience. Contact: mjmarinangeli@gmail.com . Michael is a founding member of the Grocery Business Advisory Board.
*This article originally appeared in Grocery Business [Subscribe for Grocery Business Updates]
As a Brit recently in Canada, I miss “aldidl” so much! It takes a while for people to realise they’re not just cheap, the quality is exceptional. Almost everything is own brand but as good if not better and the chocolate and prosecco is second to none!
excellent article, something for the Canadian supermarket to consider (or worry about..). another very important point worth mentioning is.. that Aldi in US is selling a lot of non GMO products a/o products without coloring etc. at VERY competitive prices !!
Having moved back to Canada from Australia, I really miss Aldi. It would be a huge hit here. Their quality products are exceptional, their prices competitive. Much more to them than the No Frills and Food Basics of Canada. First stop whenever we travel in the US. Hey, Michael, any update to this story?
I think Aldi would have a hard time in Canada especially in the Milk amd dairy department. Canada has a Milk/dairy guild, which is disgusting. Our milk and dairy prices are not going to drop because of this guild. I was in Aldi in California, and a 4L milk was only $2.50. You’d never see that price here in Canada. Current milk price in my Costco (Halifax, NS) is $5.19 for a 4L.
Very good point, Joyce!
Would be great for Aldi and Lidi,s grocery stores to come to Canada. I think alot of poeple would like them also
We would love to see them at our property Windsor Crossing Outlets!
Having shopped in these stores whilst in the UK, I truly wish we had them here in BC, Canada! We have lost Marks and Spencer, W.H.Smith and Boots, they just didn’t really make the effort to fit in the retail sector here! Hopefully we get Aldi and Lidl soon! And hopefully products of 5he same value and quality!
Would love to see both Aldi Nd Lidl in BC, Canada. Love shopping there when I am in the UK, great prices, groceries and produce. Would definitely shop there if there was one close by!
Another important challenge Lidl faces in Canada is that they don’t have the same legal strength as they do in Europe, and they would have to adhere to labour laws.
Employees wearing diapers and white headbands when they are on menstrual cycles so they can have a washroom break (https://www.theguardian.com/business/2004/sep/05/theobserver.observerbusiness) just would not fly in Canada. Neither would spying on its employees, including recording how many times they went to the toilet as well as details about their love lives, personal finances and menstrual cycles.(https://www.theguardian.com/world/2008/mar/27/germany.supermarkets). The referenced articles are true as I have seen it myself.
Everyone who’s experienced Aldi and Lidl in Europe/UK would love to have them here in Canada. I truly hope this happens soon.
hi , I have shopped at lidl and aldi in europe and their prices are soon good and their products , too. Canada has lots of families who don’t earn so much money and I am sure Canadian will love aldi and lidl. We need you in canada . I am waiting for you for a long time. Don’t understand while you are in USA in Australia in Europe but why you wait for Canada. Here in Walmart, maxi , Costco, the prices are high , we spend 400 500 cad for a month but I am sure if aldi or lidl will come to Canada we will save a lot of money. Please please please please please ee
We need this store in Western Canada- all the old mom and pop German Deli’s are gone,,, hard to get good German products,, especially on Vancouver Island,