Lidl & Kaufland: hard discounters 2012

Published: October 2012

Publisher: ResearchFarm Ltd

Product ref: 165201

Pages: 122

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Report description

Schwarz Gruppe is not just the driving force behind Lidl’s remarkable success story over recent years, but is also behind Kaufland – currently the most successful hypermarket business in the EU. The Kaufland operation is separately run from Lidl but managed according to identical, strict discount principles and the compact hypermarket format’s performance in Germany and CEE is outstanding. The reason behind Schwarz’s success is a relentless focus on price and slow and steady adaptation to changed shopper needs paired with first class execution. Whereas Kaufland demonstrates that strong growth is possible for a hypermarket format, even when most competitors are struggling against the tough macro economic backdrop, Lidl has transformed itself into the leading European retailer with the highest store count in the largest number of countries of the EU. ResearchFarm predicts that with the combined turnover of Lidl and Kaufland, Schwarz will also become the leading EU retailer by sales generated in the EU in 2013, overtaking Tesco, Metro Group and Carrefour. It will be a closely fought race though. In France, Lidl’s most important foreign market, the discount format will see a major update of the formula. Over coming months management will import Lidl’s latest cutting edge thinking from other markets, upgrade the in store presentation, extend the branded ranges and deepen the crucial focus on fresh produce. Lidl’s convenience outlet is an adaptation of the traditional hard discount format, featuring a number of innovations - and is characterised by the absence of non food. That said, we believe that non food represents a major opportunity for Lidl, as Germany’s transactional online operations showcasing a huge branded non food presence can be rolled out internationally. While much change is afoot at Lidl, the core strength will remain the private label proposition and as such there will be a clear limit for brands in store. As the first mover Lidl serves as a clear template for Aldi. Past experience at Lidl, ranging from Super Saturdays, outstanding footfall generation to the innovative promotional stance - and the gentle move away from EDLP suggests what the future could look like at Aldi and crucially what probably will not work. Lidl is also further ahead than Aldi in terms of private label segmentation and unlike its rival in vertical integration, as these have become key strategic objectives for the retailer. For Schwarz vertical integration also means optimising the supply chain and utilising spare capacity efficiently. Schwarz’ supply chain optimisation, bundling  smaller suppliers’ deliveries has really driven down costs and the initiative is now also copied by Aldi. Schwarz now needs to prepare for the attention its new status as the EU’s biggest retailer will bring. We believe that focusing on making its business future proof - by securing supply through vertical integration and by attracting top talent and shop floor staff through offering better compensation than much of the competition will be the first steps on its exciting journey over the coming years.

Table of contents

Executive summary
Context – the Macro-economic outlook for the EU
GDP sizes: EU 27, 2011 in €bn, the structure from Germany to Malta
GDP sizes: EU 27, 2007-2011 in ‘000 €bn
GDP sizes: EU 27, 11 countries still lagging behind their 2008 levels
GDP sizes: EU 27, Currency devaluations, Poland keeps momentum going, ECB action
Unemployment: EU 27, annual average 2011 (%) from Spain to Austria
Unemployment: EU 27, Misery in the periphery while…
Unemployment: EU 27, …Germany roars on due to the right policy mix
inflation: Euro Area and EU27, 2006-2011 (HiCP), %
inflation: EU 27, deflation avoided, lost decade in store?
inflation: Euro Area 17, 2006-2011 (HiCP), %, welcoming Estonia
interest rates: ECB and BoE, record low rates and quantitative easing
interest rates: breathing space for southern Europe, LTRO
Context – EU Retailing in 2012
Retail sizes: EU 27, 2007-2011 in ‘000 €bn
Retail sizes: EU 27, crisis has left a deep, deep scar
Retail sizes: EU 27, 2007-2011 growth in %, CAGR
Retail sizes: EU 27, a sector in turmoil, e-commerce, housing markets, ageing populations
Per capita retail spend: EU 27, 2011 in €, from Luxembourg to Romania
EU Grocery Retailing in 2012 p37 Grocery sizes: EU 27, 2007-2011 in ‘000 €bn
Grocery sizes: shoppers cut back, shop around, trade down and go to hard discounters
Grocery sizes: EU 27, 2007-2011 growth in %, CAGR p40 Grocery growth rates: EU 27 2007-11 in %, growth in Poland, decline in ireland
Grocery growth rates: ireland as a template for the rest of the periphery?
Grocery sizes: The leading countries, Top 3 take one of every €2 spent
Grocery share of total retail: EU 27, 2007-2011 in %
Grocery share of total retail: Clear crisis impact - all but four show higher share again
Grocery per capita sizes: EU 27 in 2011 in €, from the UK to Bulgaria
Hard discounters, Schwarz to become the EU’s biggest retailer
Lidl: the copy cat overtaking Aldi, the original
Lidl: the brands equilibrium, Kaufland the growth driver in CEE
Lidl: OSA and Warendruck, operational independence for Lidl and Kaufland
Lidl: category management, Kaufland the most successful hypermarket operator in the EU
Lidl: always the second mover, threat to Tesco, more potential for Kaufland
Lidl: all about expansion, solely focused on Europe
Recent developments p56 Lidl: minimum wage debates and combating a poor legacy image
Lidl: Commitment to Greece, healthy eating in the Netherlands…
Lidl: …and the UK, Fair Trade in Belgium, ongoing Swiss expansion
Financials – growing through the crisis
Schwarz: sales 2006-11, growth, domestic share of total, l-f-l growth through the crisis
Schwarz: 6% growth in 2011, aiming for €66.0bn in 2012
Schwarz: on track to become Germany’s biggest retailer – and the EU’s
Schwarz: benchmarks, sales, stores, sales per store, space, sales densities in 2011
Lidl - the most internationalised retailer in the EU
Lidl: Countries, benchmarks, sales, stores, space, sales densities in 2011 1/2
Lidl: Countries, benchmarks, sales, stores, space, sales densities in 2011 2/2
Lidl: 10,000 stores barrier broken in 2011, 10 million square meter under the Lidl banner
Lidl: Germany, sales per store to top €5.0m, cutting the branded SKU range down again
Lidl: Germany, the roll out of in store bakeries, Super Sundays, powerful footfall drivers
Lidl: 2011, sales per country in €m, market shares of total grocery universe in % 1/2
Lidl: 2011, sales per country in €m, market shares of total grocery universe in % 2/2
Lidl: France, most important foreign market, a success story
Lidl: France, rapid growth as the LME opens the market
Lidl: UK, benefitting from the downturn, fast expansion pace, space race
Lidl: UK, investing in wine to drive up loyalty among the ABs, heavy investment into fresh
Lidl: Other markets, catching up in the Netherlands, CEE, Romania and Slovakia
Lidl: disappointment in the Baltics and Scandinavia
Lidl: Switzerland – market entry lowering price points of the entire retail universe
Kaufland – the most successful hypermarket operator in the EU
Kaufland: Countries, benchmarks, sales, stores, space, sales densities
Kaufland: K-classic, a hugely successful private label line, vertical integration
Kaufland: The expansion into CEE, Kaufland first mover and more profi
Table than Lidl
Kaufland: 2011, sales per country in €m, market shares of total grocery universe in %
Kaufland: Czech Republic and Romania, shrinking the store size
Kaufland: the logistics secret, the potential of the return trip, eradicating empty runs
Kaufland: higher capacity utilisation and lowering overall costs, supplier collaboration
Kaufland: revamping non food in store, range depth unchanged
Kaufland: reason behind the success, slow and steady adaptation, first class execution
Location, format and expansion strategy p90 Lidl: revamping the store format towards a convenience fascia, focus on fresh and food
Lidl: low branded SKU count, the cash desk innovation
Lidl: drawbacks of the new model, analysis, cost drivers, space considerations
Kaufland: experimenting with self check outs and updating the format
Lidl: The expansion strategy, from quantity to quality, in store bakeries
Lidl: the introduction of FMCG A brands in 2007, overtaking Aldi, opportunities
Lidl: Growth opportunities
Lidl: working the property portfolio, sale and leaseback deals, missteps
Lidl/Kaufland: supplier relationships, no traditional category management
Lidl/Kaufland: benefits of the sourcing model, supply chain collaboration
Kaufland: launching a Private Label product at Kaufland, simplicity, simplicity, simplicity
Lidl: social media, digital marketing and exploiting the smartphone opportunity
Lidl: using QR codes, little to fear from Amazon or price comparison
Strategy
Hard discounters: 4 success factors
Lidl: Online operations, huge branded non food presence online, international opportunity
Lidl: Non food brands available online in Germany (letters B & C)
Lidl: tackling the non food issue, easier at Lidl than at Kaufland
Lidl: going soft and widening the SKU count – up to a degree
Lidl: core strength of private label proposition, a clear limit for brands in store
Lidl: private label segmentation and vertical integration as key strategic objectives
Lidl: vertical integration achieved in soft drinks, WiP in confectionery, the PET system
Outlook and forecast
Schwarz: strength, one format at a time, cost control, lean processes, reduced complexity
Lidl: challenge, negative publicity, recruiting talent, proactive campaigns
Schwarz: online threat, tackling the non food issue, easier at Lidl than at Kaufland
Lidl: Lild’s transactional website as a template for the future, drive solution potential
Lidl: the expansion opportunity, US on backburner, strengthening the core
Lidl: tailwinds from the economy, to do list, on track to become the EU’s biggest retailer
Lidl: SWOT Analysis
Sources
Table 1: GDP sizes: EU 27, 2011 in €bn
Table 2: GDP sizes: EU 27, 2007-2011 in ‘000 €bn
Table 3: inflation: Euro Area and EU27, 2006-2011 (HiCP), %
Table 4: inflation: Euro Area 17, 2006-2011 (HiCP), %
Table 5: Retail sizes: EU 27, 2007-2011 in ‘000 €bn
Table 6: Retail sizes: EU 27, 2007-2011 growth in %, CAGR
Table 7: Per capita retail spend: EU 27, 2011 in €
Table 8: Grocery sizes: EU 27, 2007-2011 in ‘000 €bn
Table 9: Grocery sizes: EU 27, 2007-2011 growth in %, CAGR
Table 10: Grocery share of total retail: EU 27, 2007-2011 in %
Table 11: Schwarz: sales 2006-11, growth, domestic share of total, l-f-l growth through the crisis
Table 12: Schwarz: benchmarks, sales, stores, space, average space, sales densities in 2011
Table 13: Lidl: Countries, benchmarks, sales, stores, space, sales densities 1/2 in 2011
Table 14: Lidl: Countries, benchmarks, sales, stores, space, sales densities 2/2 in 2011
Table 15: Lidl: 2011, sales per country in €m, market shares of total grocery universe in % 1/2
Table 16: Lidl: 2011, sales per country in €m, market shares of total grocery universe in % 2/2
Table 17: Kaufland: Countries, benchmarks, sales, stores, space, sales densities in 2011
Table 18: Kaufland: 2011, sales per country in €m, market shares of total grocery universe in % p84 Chart 1: Unemployment: EU 27, annual average 2011 (%) (1)
Chart 2: Unemployment: EU 27, annual average 2011 (%) (2)
Chart 3: interest rates: BOE
Chart 4: interest rates: ECB ~Chart 5: Grocery growth rates: EU 27 2007-11 in %, (1)
Chart 6: Grocery growth rates: EU 27 2007-11 in %, (2)
Chart 7: Grocery sizes: The leading countries ~Chart 8: Grocery per capita sizes: EU 27 in 2011 in € (1)
Chart 9: Grocery per capita sizes: EU 27 in 2011 in € (2)
Chart 10: Lidl grocery market share by country in 2011 (1/2)
Chart 11: Lidl grocery market share by country in 2011 (2/2)
Chart 12: Kaufland: 2011, sales per country in €m, market shares of total grocery universe in %
Chart 13: Lidl 4 growth opportunities
Chart 14: Hard discounters 4 success factors
Chart 15: Lidl SWOT Analysis

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