Lidl brand resonating with US consumers - and especially with millennials

26 June 2018 Consulting.us

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.Lidl us is winning over the next generation of consumersA 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.What are the top four reasons why us customers shop at lidl usBreaking 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.

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US grocery sector in store for further hard discounter expansion

01 April 2019 Consulting.us

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”