Last updated on June 15th, 2018
European hard discounter Lidl’s entry into the U.S. over the last year is resonating with grocery consumers in a meaningful way, according to global consulting firm Oliver Wyman.
An independent survey by the firm found that 48 percent of 600 consumers who tried Lidl are now shopping there on a regular basis (more than twice per month). Consumers also are spending more money per shopping trip at Lidl today than a year ago, indicating they have found a wider range of products they prefer. Younger shoppers—aged 18 to 34—had a particularly high awareness of Lidl and shopped there frequently, appreciating both Lidl’s private label product quality and their prices, according to the survey.
“Lidl is new in the U.S. 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.”
Lidl is resonating with Millennials but has broad appeal, too
The report notes that around two-thirds of young Lidl shoppers are making more than two trips to the grocer’s stores per month, and they are buying bigger baskets than other age groups. But young shoppers aren’t the only ones warming up to the hard discounter.
“Lidl has broad market appeal and is stealing customers from a wide variety of incumbent grocers,” said Ebner during a press conference, noting that Lidl is drawing in customer who describe themselves as loyal to other formats. “The 40 percent of consumers who identified supermarkets as their primary food store are also shopping at Lidl on a regular basis—40 percent. In our conversations with supermarket executives, they are surprised to learn the number is this high, and it’s clear consumers are moving faster in the direction of Lidl than the industry (thought).”
Price, quality, promotions are Lidl’s biggest draws
The survey looked into the top four reasons consumers shop at Lidl, and there were some surprises. First, the obvious: 28 percent of young shoppers list low prices as their primary reason. For shoppers aged 35 and older, that number increases to 46 percent. More surprising is that “good quality products” came in at a close second for why young shoppers are choosing Lidl—24 percent selected quality as their primary reason. In second and third place were “good offers and promotions” and “really fresh products,” both at 11 percent.
“Remember, around 90 percent of Lidl’s products are private brands, which means these consumers have tried and prefer Lidl’s brands over nationally branded products available to other grocers,” said Ebner. “And fresh is another breakthrough for Lidl. At first glance, 11 percent of shoppers sounds like a small fraction, however, it means that for these shoppers, Lidl has delivered a winning fresh offer against incumbent grocers—many of whom try to differentiate on their fresh offering.”
Lidl also is competitive on assortment, even when compared with grocers like Walmart and Food Lion, a “surprising outcome given the space and assortment variety advantages these larger stores have over Lidl,” said George Faigen, partner in the retail and consumer goods practice of Oliver Wyman. “Incumbent grocers use increased assortment as a common lever to drive sales, but they do so at a higher operational cost, including higher store labor. After incurring these additional costs, incumbent grocers should be quite worried that Lidl is viewed by consumers as being on par in the assortment area.”
Customers are pleased with Lidl across the entire store
Shoppers are spending significantly more on each basket at Lidl this year as compared to last year. In 2017, Oliver Wyman compared the basket spend of Lidl shoppers to other formats, including discounters and national grocers. That initial number may have been disappointing for the hard discounter: 58 percent of shoppers spent more than $20. Compare that to the 85 percent of shoppers who spent more than $20 on a trip overall.
“The gap in 2017 is significant, as it indicates that last year, Lidl shoppers were purchasing only a small number of items in the store,” said Faigen.
This year, that number is up to a much-improved 84 percent, reflecting that shoppers are happy with offerings across the whole store, even in categories not normally associated with hard discounters, Faigen added.
“As an example, 51 percent of consumers are highly satisfied with Lidl’s wine offering, both its selection and its value; 58 percent are happy with Lidl’s fresh meat and poultry offering, even though Lidl does not have an on-site butcher; 52 percent are pleased with the organic offering; and 48 percent enjoy the nonfood offering,” he said. “Wine, organic products, general merchandise and fresh meat are all resonating with U.S. consumers.”
Shoppers are happy to share their experiences with friends
Awareness of the retailer among non-Lidl shoppers is increasing, and while advertising and the physical stores themselves are obvious contributors to that trend, they aren’t the only ones, said Faigen, noting the “network effect” Lidl shoppers can create among their friends and family.
“With an appreciation of Lidl’s overall great value for the money across fresh, organic, meat and private brands, Lidl customers see themselves as savvy shoppers and are comfortable telling others about their experience,” he said. “The net promoter scores we captured in the survey indicate Lidl customers are amongst the most satisfied grocery consumers.”
Incumbent grocers should be ready to compete
Much attention was given late last year to reports that Lidl was scaling back on its plans for new stores. While the survey doesn’t address possible reasons for the slowdown, Faigen believes this is just part of the learning curve that the retailer encounters whenever it enters a new country and that its efforts to fine-tune its stores to the American consumer seem to be working.
“Hard discounters are in the U.S. to stay and win. Incumbent grocers must evolve, redefining their business to align with the consumers’ demands for high quality and value,” he said. “Grocers need to double down on what they believe makes them uniquely attractive to their consumers; otherwise, they risk a certain defection of sales, profit and customers.”
The online questionnaire was fielded in the U.S. in April 2018. Oliver Wyman surveyed 3,600 individuals in the states where Lidl operates stores: North Carolina, South Carolina, Virginia, Delaware, New Jersey and Georgia. Of these, 600 had shopped at Lidl already and were asked about their experiences in detail. The sample of 600 Lidl shoppers consists of 52 percent female consumers, 81 percent with a household income between $25,000 and $150,000, and 35 percent Millennials (ages 18-34).
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