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Poland: Lidl successfully climbs to the top rankings of the largest retailers in C- & E-Europe

Discount Retail Chain Lidl (owned by the German Schwarz Group) dethroned its sister supermarket chain Kaufland in the Czech Republic in 2019. A year later the Schwarz Group's discount store also became the market leader in the Hungaria, Romania and Slovakia. In the relatively newly entered markets of Serbia and Lithuania, Lidl is already number three in the national rankings of food retailers and is quickly gaining new shares, while reaching the break-even point.


Lidl is no longer a discount store, although in its communication it cleverly uses the image of a store with low prices. Today, however, it is climbing up, filling a niche of modern supermarkets that is largely undeveloped in the region.


Why?

Admittedly, there is a diversity of customer groups and purchasing missions between formats with a limited assortment and low prices and operators offering added value and a full assortment. But these boundaries are becoming increasingly blurred. It is the discounters that solicit areas developed by other retailers and attract their customers. Lidl, Aldi and company are evolving towards supermarkets. That is, they expand the assortment, including domestic brands, while adding specialized/niche products for more affluent customer segments. The growing need to save over the last time naturally pushes consumers towards a cheap retailer.


On Lidl's home market, big discounters are fighting a fierce battle with supermarket giants, i.e. Edeka and Rewe. It is this channel and these two brands that increase their share in the domestic food market every year, also in times of pandemic. A great offer of fresh products, most of them offered in service counters, an ecological, sustainable and "free" range [lactose, sugar, gluten... etc.], as well as strong local legitimacy through well-organized short supply chains and joint management of stores are the distinguishing features of these chains, which discounters only try to copy very successfully. Among the top ten retail brands in 2021, Edeka and Rewe supermarkets came first, and in the top ten there were five more discount brands.


So what is the secret of Lidl's success in Central and Eastern Europe?

Looking at the market structure in Central and Eastern Europe, Lidl can be described as a "fox in a hen house". In most markets, there is no significant discount competitor. In 2020. Lidl generated net revenue of €16.9 billion in the region, with a pre-tax profit of €0.97 billion, corresponding to an EBT margin of 5.7%. The next largest discount operator was the Polish Biedronka with net revenues of EUR 13.8 billion, gross profit of EUR 0.8 billion and a margin of 5.9%. Far behind is Penny Market with revenues of EUR 3.6 billion and a margin of 2.3% (data based on company reports presented by the Ministry of Finance).

In addition, in Central and Eastern Europe there are no regional large competitors in the form of supermarkets as in Germany. Billa, Lithuania's Maxima, Spar Austria and Spar South-Africa, as well as various Ahold Delhaize activities, bring in an average of less than €1.5 billion in revenue per country. This means that Lidl can fill a market niche and position itself as a supermarket. And that's exactly what happens. Every year, the discount store increases its offer by several percent. The list of well-known international and domestic brands attracts customers, including those who previously shopped "in one place" in a larger format.


It also means that Lidl reaches more affluent customer segments than the original target group of discounters. Let the best illustration be the strategies of entering the last two markets: Lithuania and Serbia. While in Lithuania Lidl positioned itself with the slogan "quality for all" and quantified the entire assortment for 3100 SKUs, in Serbia (with a purchasing power equal to one third of the Baltic countries) it positioned itself as a hard discount store with an assortment without fireworks, i.e. 1800 SKUs.


Source: Sebastian Rennack, Aletos Advisory and DRC Associate



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