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2013 is 'going to be Lidl’s year'

The Retail Bulletin and ResearchFarm have teamed up to bring you an insider view into Schwarz Group’s Lidl & Kaufland. The Group is on track to becoming Europe’s biggest retailer by sales in 2013.

GENERAL MERCHANDISE

2013 is 'going to be Lidl’s year'

You can order the report here and receive a special 10% Retail Bulletin discount.

ResearchFarm’s Daniel Lucht writes that the EU grocery sector is going through one of the most radical transformations in decades as consumers of the squeezed middle change their spending habits, which plays right into discounters’ hands. Whereas Schwarz has overtaken both Tesco and Carrefour on sales generated in the EU already, he predicts that the retailer will also leapfrog Metro Group next year and claim the top spot by reaching a turnover of €66.0bn in 2013.

Lidl and Kaufland's rise to the top flies in the face of established wisdom. Both arms of the business are managed according to strict discount principles and are (apart from Lidl’s transactional non food site in Germany) strictly single format operators. Their success - especially when pitted against the troubles of Carrefour, Metro and to a lesser extent Tesco demonstrates that a product centric discounter can outperform the leading customer centric multichannel retailers without much cutting edge technology. By operating according to the principle that less is more, reducing complexity and by flawless execution and timely exploitation of trends Schwarz has outpaced the multichannel competition in Europe.

Discount retailing strikes a chord with cash strapped shoppers in the current tough macro economic climate. However one should not solely attribute the discounter’s success to the current crisis. Privately owned Lidl and Kaufland have worked hard and steadily invested in internationalisation and growth over the last decades and this - principally - has delivered the leadership position. With capex budgets being extremely tight at most publicly traded companies, it will prove very hard for multichannel players with a huge hypermarket estate  - such as Carrefour - to catch up, as the cost bases are higher and processes much more complex.

FMCG producers will also be impacted by the rise of the Group, with Lidl’s centralised buying preferring standardised ranges that can be sold across the entire EU store network. By buying such huge volumes for its discount business Lidl exerts heavy downward pressure on CPG pricing, leading to a level of price convergence and competitiveness across the markets of the EU, where the retailer has a presence.

Whilst supplier negotiation around price can be difficult, Kaufland also collaborates closely with FMCG companies by offering a comprehensive integrated supply chain solution, with Schwarz in charge of logistics, bundling trips to drive down costs in the supply chain. Due to its huge buying power Schwarz can negotiate much better deals from logistics suppliers than most standalone producers and the retailer passes on these savings to both suppliers and ultimately customers in the form of lower prices.

Schwarz is also increasingly moving towards a vertical integration model, where the retailer controls all aspects of production and the supply chain and can then raise all the value and synergy potentials. This enables Schwarz to offer a unique private label proposition, to neutralise direct price comparison but crucially also to secure supplies when growth is rapid - so that the retailer is able to maintain its industry leading standards of OSA.

With the sluggish economy driving higher footfall through the discounter’s doors, 2013 decidedly looks like it is going to be Lidl’s year.

To view the brochure and claim an exclusive 10% discount for Retail Bulletin readers, enter the code ‘bulletin’ on the check out page, click here.

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