Sounding Board: German engineering

German retailer Lidl is once again making overtures to the U.S. market.

Len LewisI find it heartening that there are those who still pursue the Great American Dream.

Of course, they are not Americans—but that is beside the point. The latest to see the U.S. as a land of milk and honey—or is it money—is Lidl, the deep discount, limited assortment grocery chain operated by Germany’s Schwarz Group and whose interest in U.S. expansion was first discussed in these columns two years ago.

Recently, the 10,000-store chain announced that after conducting feasibility and efficiency studies, it plans to open here in 2014 or early 2015. Some say they will begin on the East Coast but knowledgeable sources are pointing towards California. That is not a lot of time considering it took Tesco five years to research the entry of Fresh & Easy.

This is Lidl’s second look at the U.S. market. Its first exploration was six years ago. However, now it is in a stronger position to internationalize and where better than the U.S. where its archrival Aldi and upmarket counterpart Trader Joe’s, are doing so well.

Of course, I am sure that the Euro crisis and mature European markets had a lot to do with Lidl’s decision. If everything goes according to plan, the company, which already has a presence in 26 countries, will open 100 stores by 2015. This will require an initial investment of 500 million euro or about $660 million.

Lidl may not have any options at this point. The company has reportedly explored Russia, Turkey, Brazil and Asia but decided against these markets at this time due to political instability.

If things run smoothly, a U.S. launch could be worth $1.3 billion to Lidl with 240 stores by 2017, according to Planet Retail, which also believes that Lidl is looking at 1,250 stores in the U.S.

The big question among many observers is what the stores will look like. In all likelihood, Lidl will follow the same strategy as they have for new stores in Europe by building units with greater ambiance and departments like bakery and wine sections. Basically, they are going for the same strategy here as they have in Europe—to be the supermarket of choice for middle- and upper-income shoppers.

The real challenge will be building an entirely new supplier base for the U.S. rather than the copy and paste it has done throughout Europe for so long. Lidl’s buying is still largely centralized at its European headquarters and management seems to have a problem easing up on the controls. The U.S., as others have discovered, is an entirely different market. Dictating to it simply does not work.

Another potential problem for Lidl is the baggage it carries, which will most certainly be fodder for the unions which will see Lidl as another shot at redemption after their failure to organize Fresh & Easy.

Over the years, there have been many stories in the European press about Lidl’s treatment of workers and “anti-union” activities. One of my favorites, vehemently denied by management but featured prominently in an article in Lebensmittel Zeitung, a respected German publication, took place at stores in Poland and the Czech Republic where female workers who were menstruating had to wear certain color headbands in order to use the restrooms without special permission.

Another accusation was made by the German weekly magazine Stern, which reportedly obtained hundreds of pages of documents proving that the company hired detectives to spy on people on and off the job. In 2009, a German director was fired after the media published stories saying that the company systematically monitored employees’ health records, including which employees were hoping to get pregnant.

True or not, these are not the kinds of stories that endear you to U.S. consumers. However, those who feel that Lidl’s entry into the U.S. is too far away to worry about or that it is just another Euro-retailer doomed to failure—think again.

Every Lidl bit hurts! Sorry, I could not resist.

This entry was posted in 2013 09 Article Archives, Columns and tagged , , , . Bookmark the permalink.