Lidl US, 1 Year In: What Happened and What’s to Come?

European deep-discounter Lidl is embarking on its second year in the United States – after failing to live up to the towering expectations of industry watchers ahead of its much ballyhooed debut here in the summer of 2017. However, by and large, the outlook is pretty positive for Lidl currently as it recalibrates its approach in response to the American retail landscape.

Vivaldi Partner Pete Killian spoke to Progressive Grocer about Lidl’s lackluster debut in the US market last year and how they can gear up for a more successful second showing by leading with brand:

Many reasons for Lidl’s weak launch are well covered: suboptimal location selection, little localization, strong economy not helping a private-label-centric proposition, U.S. consumer differences versus European private label preference, etc. And it’s still early stages, with some research showing that it’s gaining some traction.

But the core challenge is strategic, in Lidl’s approach to brands. Lidl needs to treat private brands like brands, and also strengthen its overall brand to do more work for the business.

Private brands are brands. They take investment to build, sophistication to brand effectively, and time to gain traction. Lidl’s packaging and branding signal “this product is just a leading brand substitute” to shoppers, rather than trying to establish its own brand identity and its differentiated benefits.

Beyond individual products, Lidl needs to define and amplify its overall brand beyond just price and quality. Trader Joe’s is sometimes held up as an example of a retailer winning with private labels, but really, Trader Joe’s is winning with its overall brand. Its brand stands clearly for fun, newness, exploration, snacks, friendly service, equitable queuing and fun (yes, “fun” twice!). Their shoppers don’t think of their products as “private label.” It took decades for Trader Joe’s to build that brand equity in the United States, and it took decades for Lidl to build that equity in Germany.

Private-brand competition from established food retailers has also become much stronger than it once was. So Lidl isn’t tapping an unoccupied white space, or serving as a clarion call for a new “movement” around private brands. The secret is out that growing private brands is a strategic necessity for food retailers.

Pete also shares his insights on what the future holds for grocers and what they can leverage to thrive.

  • Lidl has been very clear about its plans to refocus and build for the long term. Grocers can expect continued attention-grabbing prices on key value items (e.g., eggs at 32 cents/dozen, milk at $1.32/gallon) to reset shoppers’ price expectations.
  • Online could be a major source of growth if Lidl’s threadbare operating model can allow it. Many consumers are passionate about private brands in general, and in theory, Lidl should appeal to them. Brandless is tapping into that passion online in a location-agnostic way, because there’s not a critical mass of these zealous private label lovers in any given store’s shopping radius. But Lidl has to find those private label true believers around every location, and then win them away from Aldi and Costco.
  • Private-brand food is a must-win for Amazon. By investing heavily in that space, Amazon will train mainstream consumers to embrace private brands, just as they’ve trained consumers to shop online.
  • The more that retailers move to private brands – and they will continue in this direction – the more important their overall brand becomes. For most retailers, the overall brand has been neglected, hoping that location, experience, assortment and price positioning “speak for themselves.” But for private brands to succeed – and for retailers to support their brands efficiently – their overall brands need to do more work, and tell shoppers what to expect in the private brands, beyond “quality at a great price.” Differentiating one’s brand and discipline to execute that promise for shoppers will be critical.
Type: News