Among Lidl's aisles of private label brands, beer, wine, meats, seafood, produce and bakery, global consulting firm Oliver Wyman has found a Lidl surprise: The German hard discounter is resonating with U.S. consumers and beating its competitors on many fronts.
The consulting firm released a comprehensive study Thursday based on interviews with more than 3,600 consumers in states with Lidl stores — South Carolina, North Carolina, Virginia, Delaware, New Jersey and Georgia. They found almost half of Lidl shoppers go there at least twice a month. Shoppers are satisfied with the store's offerings, merchandise quality, freshness and price. They are spending more there. And shoppers say Lidl is doing better on most fronts than other stores.
"Incumbent grocers should be quite worried that Lidl is viewed by consumers as being on par [with them]," study co-author and partner in Retail and Consumer Goods George Faigen said during a conference call to unveil it.
Despite news reports about the U.S. iteration of the German hard discounter that have not seemed positive — it's only opened about half of its 100 planned stores along the East Coast, hasn't generated necessary shopper traffic and abruptly replaced its CEO last month — the Oliver Wyman study, which was completed completely independent of Lidl, tells a different story. After all, Faigen said on the conference call, Lidl has stores open in more than 20 European countries and it's extremely experienced in the art of adaptation.
"We expect that they're going through a similar process in the U.S., tuning to the American consumer with the expectation of a long-term success," he said. "...I see them as an agile company that finds a way to continually match the needs of each local market they serve."
Where Lidl is winning
The study found that Lidl is doing extremely well with something the entire grocery industry struggles with: Loyalty. Out of the Lidl shoppers that Oliver Wyman spoke with, 48% shop at the store at least twice a month. Study co-author Tanja Ebner, who is a principal in the practice, said on the call that Lidl attracts shoppers of all ages and income levels. But the store draws the most repeat customers from the coveted under-45 category, where 61% of them shop at Lidl multiple times a month.
"Lidl is developing broad market appeal," Ebner said. "While millennials clearly stand with Lidl, they are not the only ones."
More than half of these younger shoppers — 53% — spend $50 or more every time they go to Lidl, the study found. But basket sizes are growing overall for all shoppers and aspects of the store. According to the study, 84% of all Lidl baskets are currently more than $20. A year ago, only 58% of baskets were at least $20, meaning consumers are using Lidl for more major shopping trips.
Since people aren't necessarily spending more on groceries, Lidl's repeat customers are those who used to shop more often at other stores. The study found repeat Lidl shoppers coming from all store categories — 40% also shop at regular groceries, 49% shop at other discounters, 52% also shop at hypermarkets, and 66% do some shopping at warehouse clubs. Ebner said they were surprised to see these numbers were so high.
"In our conversations with supermarket executives, they are surprised to learn the number is this high, and it's clear that customers are moving more quickly in the direction of Lidl than the industry commonly has viewed," Ebner said.
"In our conversations with supermarket executives, they are surprised to learn the number is this high, and it's clear that customers are moving more quickly in the direction of Lidl than the industry commonly has viewed.
Principal, Oliver Wyman's Retail and Consumer Goods practice
Lidl shoppers also enjoy many aspects of what the store offers. Millennials tend to really like the lower prices, with 28% saying that is their top reason for shopping at the discounter. (Looking at all Lidl shoppers, prices are what brings 48% of them through the door.) Almost a quarter of millennials say they shop there because of their high quality items for the price they pay, and 11% say they like the offers and promotions. Another 11% prefer the freshnenss of the produce. Faigen said this wide variety of reasons shows Lidl is doing well to broadly hit the categories that are important to U.S. consumers.
Regular shoppers also reported that Lidl is on par with or better than many other groceries in terms of value, private label brand quality, the fresh department, service and ease of shopping. Faigen said this should worry traditional grocers, who spend more on inventory and personnel costs — and often charge more for national branded goods.
Lidl shoppers also said they are highly satisfied with the freshness and quality of products, with 63% reporting high satisfaction with fresh fruits and vegetables. Faigen said consumers are really catching on to the great values produce bought at a hard discounter can be.
"If they get it right, which they seem to be doing so far, a limited fresh offering can have great appeal," he said.
However, Lidl hasn't gotten everything right, according to the study. Shoppers don't like all of the locations the store has chosen, saying some are inconvenient — which keeps them from shopping there more. According to the study, Lidl is aware of these problems and is moving away from its strategy of building all new stores from the ground up.
Advice for traditional grocers
While the study shows a blockbuster first year for Lidl, it's going to continue to eat away at the customer base for other stores. Two-thirds of shoppers surveyed reported a "Lidl effect" at other stores — prices fell to offer similar deals to what a shopper would find at the discounter.
The study recommends that traditional grocers take a hard look at their prices and make adjustments to better fit what Lidl is offering. However, the study says, they definitely want to be careful considering low margins in the industry.
One way to cut prices is to cut overhead costs, which the study also recommended traditional grocers consider. A hard discounter like Lidl only spends 4% to 5% or what it earns in sales on personnel. Traditional grocers spend 9% to 12%. Lidl stores themselves require limited personnel, with easy restocking from cartons in the back, and few frills at the checkout. Again, the study cautions that grocers don't make any drastic changes without considering what is realistic for their store to maintain customer service levels.
Limiting assortment and investing in fresh products are also ways that traditional grocers can steal a page from Lidl.
One thing is certain, the study's authors said: In time, Lidl will get even better at serving U.S. consumers. The shoppers there now say they are very savvy — a trend that is likely to continue.
"We're seeing American consumers offered new choices," Faigen said. "Lidl's offering seems to be well curated for American consumers' interest."