Grocery and Food

Success Eludes Lidl

RR LidlWhat happens when an abundance of ambition meets empty execution? The result might be called “Lidl.”

The truth is that Lidl, the discount grocer from Germany, has been opening stores in the U.S. for nearly a year now, but has failed to demonstrate anything close to what it set out to accomplish.

The lack of clear success certainly isn’t for want of deep pockets. Lidl is a unit of Schwarz Gruppe, a huge company that operates some 10,000 stores in 26 countries other than the U.S. It’s well established as one of the largest food retailers in the world. Lidl announced six years ago that it intended to enter the U.S. by opening a fleet of 100 stores in the subsequent two years. It declared that it would cause shoppers in the U.S. to “Rethink Grocery;” a disruptor’s boast.

So, Lidl pressed forward with the business of acquiring store sites along the eastern seaboard. Plus, it developed three distribution centers. Store locations were mainly in small towns. And, as if to beard the lion in its den, many were near competitive discounters such as Walmart and Aldi. Well, quite a bit of time, more than was projected, went by before any stores were opened. Indeed, the first stores didn’t open until last June and, even then, a paltry 10 stores materialized. Now, there are about 50 Lidl stores in all. Lidl continues to predict that another batch will follow in a couple of years or so, but there’s scant evidence to suggest that will happen.

Actually, Lidl has halted development on numerous store sites, many are overgrown by weeds. Abandoned sites litter a wide swath of geography from Georgia to New Jersey, the target states for initial rollouts. Beyond that, Lidl acquired several store sites in Texas and Ohio. Construction has halted on those sites, evidently signaling a withdrawal from those states.

Here’s the key question: Why did Lidl, part of a highly successful company, fail to gain the traction it anticipated in the U.S.? There are a host of reasons, including too many sites in towns too small to support more retailing of its type, especially when they were near formidable competition. Beyond that, it seems to me that Lidl simply projects a fuzzy image to consumers. Lidl is really like a miniature super center of about 35,000 square feet. In addition to its grocery, bakery, wine and floral departments, it’s also heavy on nonfoods.

The eclectic nonfood offerings include sporting gear, tools, hair styling accessories, apparel and more. Some hairstyling categories carry the Paris Hilton name and some apparel lines feature the Heidi Klum name. So, consumers have every reason to ask, “what kind of store is it?” Is it mainly a discount food store, as it purports to be, or is it a source for utility apparel or fashion apparel? Is it for fashion accessories? Is it a sporting goods store? A hardware store? Or what?

Additionally, the store design doesn’t suggest what kind of store it is. Stores feature a lot of glass and a dramatic sloped roofing. The design might better befit a boutique than a discount food market. So, in trying to be all things to all consumers, it fails to succeed at being anything definable. Store traffic counts bear this out. Lidl stores tend to attract a high number of curious shoppers when they first open, but over time that traffic ebbs away.

To Lidl’s credit, it has fully recognized the problem. Klaus Gehrig, CEO of Schwartz Gruppe, told a German trade publication that, “if you make a mistake, you have to correct it.” As we’ve seen, part of the effort to correct the mistake has been to halt plans for rapid store rollouts.

Lidl is also turning to larger markets, shifting from operating in smaller markets where the only way to succeed to is to pull shoppers from incumbent stores. We’ll see if the new focus on larger markets represents a cure or just another dimension of the problem. Lidl may also move to opening much smaller stores and revamp existing spaces instead of building from the ground up.

Lidl also faces the challenge of having a lot of overhead. Its distribution centers represent a big investment that can be recouped only by finding out how to successfully sell goods in the U.S. It will force Lidl to press forward because the cost of withdrawal would be huge. Finally, as is true of much of the discount sector, Lidl largely ignores the internet, depending on its physical stores alone.

One lesson all retailers can take from this is that being a disruptor isn’t easy business. Of course, many disruptors succeed, but inept ones, in a reverse compliment, show established retailers some of the things they’ve done right for a long time.

 

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