Lidl 2019: Going omni-channel, disrupting itself before others do it, Vertical Integration, Digital

Lidl 2019: Going omni-channel, disrupting itself before others do it, Vertical Integration, Digital

In 2019 Schwarz (Lidl and Kaufland) broke through the 100bn barrier in sales for the first time. The retailer grew by 7.4% to €104.3bn in 2018/19. Every two to three years the Schwarz Group has changed Lidl’s CEO – and since 2014 there have been 4 different bosses. At the same time Lidl added €20bn in sales. This also means that sales growth has not been a factor in the management changes – mostly these were due to internal disputes and Gehrig seems to have a disruptive style that asks for frequent changes. So far this seems to be working.

And so, despite this remarkable success, Europe’s biggest retailer is changing its business model once again. The things that will remain the same are low price focus, and an extreme focus on efficiency in all business processes.

The things that will or have changed: (I) a focus on organics and environmental credentials, (II) increased vertical integration in all business processes around post consumer (recycling and packaging) as a natural consequence of the success of producing its own private label products – and of course packaging is vital to the overall product proposition, (III) automation and digitalisation, (IV) the online push, arguably still in beta phase without full board commitment, and (V) US expansion, a massive opportunity for the company.

Lidl was first, ahead of Aldi, to innovate and move on from the hard discount business model of the past. The retailer did so by sprucing up its tired store estates and creating a better ambience in store combined with a SKU range extension. This clear trading up strategy, which included permanent listings of FMCG A brands for the first time broke the mould and forced Aldi into copying the strategy.

According to the company, Lidl’s current SKU count stands at 3,500, of which 25% are FMCG A brands (875 SKUs), the remainder is private label (75%). However the permanent listing of FMCG A brands had two negative consequences, a clear rise in complexity and cost as well as becoming price comparable, which wasn’t an issue when Aldi and Lidl were predominantly private label only. The direct comparability of many products – especially the FMCG A brands listed by both retailers – has opened up a new opportunity. Lidl is feeling emboldened to attack Aldi, the clear price leader in Germany - a position Aldi has held for decades. The discounter has launched a new ad campaigns and a new hallmark called Lidl price. Lidl has gained considerable experience with the promotions on FMCG A brands in recent years and this has led to the discounter undercutting Aldi’s promotions as soon as they have been launched. This also shows that the lowest price is one of the best arguments for either Aldi or Lidl, despite all the trading up strategies.

(1) This trading up and premiumisation has now moved into a new phase with a strong focus on organics. Organics attract a different shopper profile with higher purchasing power and basket spend. Organic also conveys high end quality and is perfect for an upgrade of the private label proposition. It would also justify higher prices and in turn margins – but this depends on Lidl’s pricing strategy.

(2) Vertical integration, first pioneered with production of private label products has been so successful that the retailer now stretches the concept into recycling and waste disposal (Greencycle), and takes charge of all packaging and recycling aspects. Another update of the Vertical Integration strategy concerns the automation in the supply chain. In Denmark and Germany Lidl now operates with robots in its most modern DCs and has taken the technology to the USA as well.

(3) The innovation at the back end is mirrored in the front end around shopper communication and personalisation. Lidl’s digitalisation strategy is employing a Customer Relationship Management 4.0 solution. The strategy is far broader than just the roll out of the LIdl Plus loyalty programme. Lidl doesn’t want to lose out on big data approaches and the benefits the online players have in addressing their shoppers individually with one to one marketing initiatives. The discounter is doing so, despite generating 99% of its sales offline in its bricks and mortar stores. In this sense Lidl has become an omni-channel player.

This of course is another radical departure from the old tried and tested discount business model. The entire idea of a Big Data loyalty system would have been anathema to a discounter only a couple of years ago. In a further step, Lidl is launching its proprietary mobile payment system LidlPay in Europe, distinct from Apple Pay or Google. Many retailers worry about losing their shopper data and relationships to the disruptors and having to pay “rent” to the payment ecosystem companies. That said most retailer initiatives have fallen flat so far, be it sector wide cooperation or individual players going it alone. Tourists are also supposed to use the Lidl Plus loyalty solution when they are on holiday abroad, as the solution is conceptualised and rolled out on a Pan EU basis. This means the personalised communication supported by the SAP solution as well as the front end interface and brand is standardised (as is the main Lidl brand of course). Despite this omni-channel approach, online sales (4) are accounting for just 1% of Schwarz Gruppe’s sales. Online at the moment seems to be kept at arms length.

The last major change identified in this report remains (5) US expansion. Lidl believes it will take it a decade until the retailer has established itself in the USA. Sales growth is healthy, but the retailer has unsurprisingly not reached profitability yet.


  • Executive summary
  • The concept
    • Concept: relentless process optimisation towards digitalisation
    • Concept: modernising one single format, internationalisation, buying power
    • A winning format: The Discounter - success factors
  • An introduction
    • Lidl: the copy cat overtaking Aldi, the original
    • Lidl: the brands equilibrium, Kaufland the growth driver in CEE
    • Lidl: OSA, Warendruck, operational independence for Lidl and Kaufland - until now
    • Lidl: category management, Kaufland the most successful EU hypermarket operator?
    • Lidl: always the second mover, more potential for Kaufland
  • Recent key developments
    • January 2019: Organic rebranding under Bioland in DE, UK Brexit preparedness
    • January 2019: pushing DIY in promotions, Portugal cooperation with IKEA
    • January 2019: more vertical integration in DE, online grocery Italy
    • January 2019: Switzerland co-locating in department stores, Italy expansion
    • February 2019: small outlet revolution in DE, acquiring Casino outlets in France
    • February 2019: Denmark expansion plans, new Lidl CEO in USA
    • March 2019: Lidl's loyalty solution to be rolled out across Europe
    • March 2019: electric mobility, charging stations in DE, chatbot rolled out
    • March 2019: Lidl and Aldi and the price war on brands in Germany
    • March 2019: Lidl and Aldi and the price war on brands
    • April 2019: Reorganising Schwarz, Lidl growth in Austria, expansion in Romania
    • April 2019: autonomous electric trucks Sweden, ends online sales in China on Tmall
    • April 2019: Lidl growth and new CEO
    • April 2019: Lidl and Kaufland organisational shake up
    • April 2019: Lidl and digitalising pallet documentation
    • May 2019: launches digital loyalty in Germany, US expansion on Long Island
    • May 2019: Schwarz' record sales, now broken through the -100bn barrier
    • May 2019: online grocery partnership in Spain, introducing Beyond Meat in DE
    • May 2019: US online grocery Boxed partnership, succession planning finalised
    • May 2019: more US expansion, closes down online wine in Benelux
    • June 2019: London convenience outlets, second Beyond Meat promotion
    • June 2019: Lidl's market beating growth in Hungary
    • June 2019: Lidl and Aldi in Germany, market share battles
    • July 2019: launches mobile payment LidlPay in Spain, testing click & collect in DE
    • July 2019: SKU counts in discount retailing in DE, convenience umbrella brand
    • August 2019: Lidl starts attacking Aldi in Germany with new ad campaign
    • August 2019: vertical integration, ice cream in DE, introduces recyclable packaging
    • August 2019: Lidl and Aldi brands promotions
    • September 2019: extends its vegan ranges, Schwarz number one in Czechia
    • September 2019: Lidl's automatic pallet commissioning in Koge, DK
    • September 2019: Lidl logistics and robots
    • September 2019: Lidl's first metro store in DE
    • September 2019: Lidl first metro store in DE - store pictures
  • Schwarz: Data and KPIs
    • Schwarz: sales 2009-19, total & domestic growth, domestic share of total
      • Table sales 2009-19, total & domestic growth, domestic share of total
    • Schwarz: sales 2009-19, analysis, breaking through the -100bn barrier in sales
    • Schwarz: international sales, investments, digital
    • Schwarz: Lidl, Kaufland, total sales in -bn, growth 2015 - 2019
      • Table Lidl, Kaufland, total sales in -bn, growth 2015 - 2019
    • Schwarz: benchmarks, sales, stores, space, average space, sales densities 2015/9
      • Table benchmarks, sales, stores, space, average space, sales densities 2015/9
  • Lidl: the most internationalised and biggest retailer in the EU
    • Lidl: countries, benchmarks, net sales, stores, space, sales densities in 2019 1/2
      • Table countries, benchmarks, net sales, stores, space, sales densities in 2019 1/2
    • Lidl: 10,700 stores, 14 million sq m under the Lidl banner
    • Lidl: 2019, Top 10 markets, ranked by sales per country, per store, sales densities
      • Table Top 10 markets, ranked by sales per country, per store, sales densities
  • Strategy
    • Strategy: Lidl 2019 overview, 5 priority areas to disrupt itself
  • Vertical Integration
    • Fresh & local: pivot to offer quality and freshness and low price
    • Fresh & local: the importance of vertical integration
    • Fresh & local: bake off stations, meat, poultry, seafood
    • Triple supply, replenishment costs, supply chain
    • Fresh & local: standardisation versus new local approach?
    • Lidl VI in fruit & vegetables
    • Lidl: vertical integration achieved in soft drinks, WIP in confectionery, the PET system
    • Lidl: vertical integration in fruit and vegetables, DCs built, owned and run by Lidl
    • Lidl: Delays with the ice cream project, investment scaled up, cutting edge facilities
    • Strategy: Lidl is pushing further vertical integration in agricultural supply chain
    • Strategy: Lidl dependent on business performance of handful of large farmers
    • Latest developments VI
    • Germany: where are Aldi and Lidl vertically integrated?
    • January 2019: Lidl coffee roaster, vertical integration in Germany
    • August 2019: vertical integration, ice cream in DE
  • Online
    • Strategy: Lidl online
    • Strategy: Lidl online presence overview
    • Strategy: ends online sales in China on Tmall
    • Strategy: testing click & collect in DE, closing down wine online in Benelux
  • Organics
    • Strategy: Organic rebranding under Bioland in DE
    • Strategy: Lidl organic push in Germany and the reaction
    • Germany: Lidl extends SKU range under attack from Aldi
  • Digitalisation
    • March 2019: Lidl's loyalty solution to be rolled out across Europe
    • Strategy: Lidl and big data, becoming an omni-channel player
    • Strategy: Lidl and mobile payment
  • US expansion
    • September 2019: Lidl US expansion, an update
    • Strategy: US expansion on Long Island
    • Strategy: Lidl US store pictures
  • Outlook: Questions answered
    • Questions: Is Aldi/Lidl a complementary trip, or a competing one, vs. Walmart?
    • Questions: Who is most at risk to lose market share to Aldi and to Lidl?
    • Questions: What could be the ultimate market share for Aldi and Lidl?
    • Questions: What are the most effective defense tactics from competitors of Lidl/Aldi?
    • Questions: What are the most effective defense tactics from competitors of Aldi?
    • Questions: How close in price does Walmart need to get vs. Aldi/Lidl?
    • Questions: How many US stores will Aldi and Lidl operate five years out?
    • Questions: How are Aldi and Lidl funding their growth?
    • Questions: Will Lidl's entry have a better chance of success than Tesco?
  • Recommendations
    • Recommendations: FMCG Players In The USA Should Get Ready For Lidl Now
  • Outlook
    • Sources

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