Lidl brand resonating with US consumers - and especially with millennials
A year into German hard discount grocer Lidl’s expansion into the US Market, a survey finds that Americans are responding favorably to the fresh entrant into the crowded food retailing scene. Lidl ranked at the top or near the top of consumer ratings of value, freshness, and quality of private label brands. Lidl is also especially popular among millennials, the most frequent shoppers at the discount grocery chain.
The entry of discounter Lidl into the US in 2017 and the expansion of Aldi threatens to carve out an increasing chunk of the $800 billion US food market. German firm Lidl opened 37 stores on the Eastern seaboard of the United States in 2017, and has brought its total footprint to about 50 US stores as of this year. In response, rival German discount grocery chain Aldi – which has been in the US for 41 years – launched a $1.6 billion plan to revamp its stores, while also announcing plans to eventually open a further 900 US stores in the future.
Aldi and Lidl provide a strong value proposition to cost-conscious shoppers. While market leader Walmart offers cheap food and beverages, Lidl and Aldi provide equally cheap or cheaper products in a quicker and more efficient experience (in typical German fashion). At Lidl, consumers can easily choose from a narrower variety of mostly store-branded products spread over five aisles instead of agonizing over 50 different products within a category. Not having to traverse a large portion of the 140,000 square feet of a Walmart Supercentre is another benefit. In a world where consumers are increasingly paralyzed by infinitely expanding choice, the provision of a couple of quality choices can make for a better shopping experience. In the avenue of grocery shopping, perhaps less can be more.
A year into Lidl’s measured expansion into the US, management consulting firm Oliver Wyman reveals that American consumers like what the German grocer brings to the US food retail scene. In a survey conducted in the six states where Lidl stores currently exist, Oliver Wyman found that almost half of consumers who tried Lidl are now shopping there on a regular basis (more than twice per month).
Oliver Wyman’s survey also found that consumers are spending more money per trip at the hard discounter, showing that they are starting to prefer a wider range of Lidl products. Lidl is also especially popular with younger shoppers (18-34), who have a higher awareness of the European brand, while also shopping there more frequently than other age groups.
Of those who tried Lidl, 71% of those aged 18-24 now shop there more than twice a month, while 62% of 25-34 year olds do so. On the other end of the spectrum, only 26% of those aged 65+ shopped more than twice a month at Lidl.
Overall, consumers are attracted to Lidl’s products, appreciating both their high quality and low prices – which gives it a strong competitive position which makes it harder for incumbents to compete simply by lowering prices. In the survey, Lidl beat incumbents like Walmart, Kroger, Publix, and Food Lion on value (with Aldi coming closest to matching Lidl). However, Lidl also beats the others on freshness (tying with Publix), while also winning on quality of private brands, only being surpassed by Harris Teeter.
Breaking down the top four reasons to shop at Lidl by age categories, low price and good quality products are the top two reasons among all age brackets. However, millennials’ number one reason for shopping at Lidl is the quality of products (28%), while for 35+ it is the low prices (46%).
“Lidl is new in the US market, and we expect that they will gradually adapt their model based on consumer feedback, a pattern they successfully honed entering more than 20 countries in Europe,” said Tanja Ebner, Principal in Oliver Wyman’s Retail and Consumer Goods practice. “What Lidl has done so far has struck a chord with younger consumers who are valuing Lidl’s good private brand product quality almost as much as their low prices.”
Looking to the future
Consultancy TCC Global believes the US food retail market to be about a decade behind the market dynamics of the UK, where the big grocers have had their shares eroded and margins squeezed by the successful expansions of Lidl and Aldi. The chains’ simple, clean, and smaller stores and their no-frills approach are expected to increasingly grab US customers, just as they have in the UK. Bain & Company forecasts that discounters’ revenue will rise 8-10% by 2020 – five times faster than that of traditional grocery chains – driven in part by the stagnating real wages of consumers.
While Walmart will weather the storm of Lidl and Aldi expansion, analysts believe that the discount chains will heavily impact smaller, regional grocery groups. Lidl and Aldi are likely to win over shoppers who currently shop at their nearest regional store with their aggressive pricing and clean, no-frills stores. Additionally, consultancy Emerton predicts that Lidl and Aldi will divert traffic from ‘intermediate’ distributors like Safeway and Publix who haven’t found a clear and differential response to the attractive discounters.
