Discount Retail Chain Lidl UK has bounced back to profit this year, swinging from a £76m loss to a £43.6m pre-tax profit, as it gained more shoppers than any other supermarket.
Momentum has been mounting for the supermarket which has left rival Aldi in its wake over the past year. Earlier this month, Lidl was named the fastest-growing supermarket with a bricks-and-mortar presence for the 15th period in a row, according to Kantar.
But with competition fierce in the sector, can the discounter continue this good run?
The secrets to Lidl’s recent success
Retail consultant Matthew Nobbs, who spent 22 years in leadership roles at Lidl, says the some of the grocer’s recent successes comes from the fact it has “spent a lot of time becoming more efficient in the last 12 months”.
“It has been getting its operating model right, getting availability right, and it’s paid dividends. Now not only has it gained new customers, but it’s opening stores again, albeit through a different model of sale and leaseback, which is new for Lidl,” he explains.
This is an about-turn for Lidl, which just last February revealed it was scaling back its store opening programme from 50 new stores during the year to just 25 to focus investment into expanding its warehouse capacity.
However, earlier this month it unveiled plans to push ahead with its national expansion as it exchanged on a £70m sale and leaseback deal for 12 new stores and will open an additional 10 new stores before Christmas.
At the time, Lidl GB chief development officer Richard Taylor said the deal is “just the latest example of how we’re continuing to expand our footprint across the country, ensuring that even more households can benefit from a Lidl store nearby”.
For Lidl chief executive Ryan McDonnell, food itself is at the heart of the discounter’s success as he praised the range, quality and value of its offer.
He says: “We’ve come a long way since we opened our first stores here 30 years ago, from stocking jars of frankfurters to now having over two thirds of our products sourced from
British suppliers.”
However, McDonnel adds that it has “stayed true to our customer promise of offering the best value on the market. In doing so, we have become trusted by households across the country to be their one-stop shop, while always supporting British food production”.
According to Kantar data, for the 12 weeks to 3 November, Lidl secured 326,000 additional shoppers to its stores, which is more than any other supermarket, and saw over 35 million more shopping trips made over the year.
McDonnell adds: “Now, 60% of households are choosing to shop at Lidl, and they’re coming back more frequently, which is a fantastic sign of increasing loyalty.
“We have great momentum and, although our ambitions have no ceiling, we won’t rest on our laurels. We’ve been laying the foundations for further growth whilst creating an even better store experience for shoppers.”
Can this momentum continue?
Nobbs believes that Lidl can absolutely continue continue this good run, citing its operational prowess and “relentless ambition for growth” in its existing estate, and new store programme as some of the reasons behind this.
He believes the growth of the discounters is far from over and points out that value chains hold a 33% share of the market in Germany, which he says shows there is “huge opportunity” for the likes of Lidl and Aldi in the UK.
Looking ahead, Shore Capital retail analysts Clive Black and Darren Shirley say: “We expect Lidl to remain true to its value roots, so a curated assortment, strong core value credentials leveraging its own growing supply base.
“Lidl is, and we sense, will remain a formidable player in the UK grocery scene – driving up the M1 past its distribution centre is a statement of intent – but also, we believe, a rational player in the UK grocery scene, fitting into our now quite long-standing narrative on sector dynamics of improving productivity per square foot, stable to rising margins and, with capital discipline broadly evident, improving free cash flow credentials.”
Can rival discounter Aldi catch up?
There has been a marked difference in Aldi and Lidl’s performance over the past year. While Lidl has been soaring, Aldi has seemingly plateaued. The latest Kantar data shows that while Lidl’s sales soared 7.4% over the last 12%, helping market share shoot up 0.3 percentage points to 7.7%, Aldi’s sales nudged up 1.6% and it’s share remained flat at 10.4%.
Nobbs says that the problem for Aldi is that it’s “doing the same thing”, and although this is done “very well”, “there’s nothing new or magic”.
“Aldi is the master of performance and productivity. Lidl is the master of range and buying. Lidl has outperformed in terms of customer proposition and Aldi needs some new trading mechanics and propositions to continue to grow,” he says.
In other areas, Aldi is weaker than Lidl. It does not offer a loyalty scheme and its bakery offer does not compete with Lidl’s, which Kantar revealed earlier this year was the most popular supermarket bakery, selling an average of 122 croissants every minute and one jam doughnut every second.
With shopper numbers – and profits – soaring, and ambitions to reach even more customers through the opening of new stores, Nobbs believes that Lidl “has a momentum that will be hard to stop.”
Read more: As Lidl swings back to profit, can it maintain its position as UK grocery's star performer?
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