BOSTON — Global discount supermarket chain Lidl’s entry into North Carolina, South Carolina and Virginia could remove $1 billion in local sales in the medium term, according to a survey published by global consulting firm Oliver Wyman on Monday.
The survey found that consumers are overwhelmingly excited about trying Lidl, even though they have never stepped into one of their stores before, with 39% saying they would shop at Lidl once a week or more in the future. These high levels of trial and intent to return as a regular shopper were driven by their expectations of high quality and innovative new products.
"Incumbent grocers need to take notice. The threat from Lidl is real and will only get clearer as their stores generate trial and repeat sales. ”“Incumbent grocers need to take notice. The threat from Lidl is real and will only get clearer as their stores generate trial and repeat sales,” stated George Faigen, partner in the Retail and Consumer Goods practice of Oliver Wyman. “Grocers who believe my customers would not shop at Lidl or Aldi will likely be surprised. The U.S. and European trends we have measured in the past five years tell a clear story of consumers moving portions of their weekly shopping from incumbent grocers to these private brand retailers.”
According to Oliver Wyman, even though none of the survey respondents had ever been to one of the grocer's locations in the U.S., 67% said it is likely that they will try shopping at Lidl, and 52% are excited about shopping there. And contrary to commonly held industry wisdom, households at all ends of the income spectrum are excited about Lidl’s store openings. In fact, 49% of households with an annual income greater than $75,000 are excited about Lidl compared with an almost identical 48% of households earning less than $25,000 last year.
Oliver Wyman found particularly high excitement from consumers around Lidl’s new product offering and their highly awarded private brands. Although, being unfamiliar with Lidl’s private brands was also one of the top concerns among respondents, too.
Grocery retailing is a zero sum game, Oliver Wyman noted, meaning every dollar spent at Lidl will be missing from the cash registers of incumbent grocers. With more pressure on already razor-thin margins, working on step changes in cost efficiency will be critical. Incumbents will also have to go beyond cost and improve their connections to their customers especially in areas where Lidl will find it hard to replicate.
Oliver Wyman recommends grocers revisit their corporate growth strategies and find ways to tune them to take into account the new entrant Lidl and a maturing Aldi, which has 1,500 U.S. stores and is investing heavily. Everything should be up for consideration, with the idea of crafting each to deliver the unique experience you want your brand to stand for: price and promotion strategies, category strategies, private brand architectures, third party relationships, store services, the uniqueness of the fresh offer across the store and shopper engagement and loyalty.