Aldi and Lidl - standard bearers of successful internationalisation

Aldi and Lidl - standard bearers of successful internationalisation Prepared for Redagricola, Piura, June 22nd 2016
What we will talk about
Internationalisation
Where have the discounters come from?
Understanding their success from a consumer perspective
Impact on other retail / 7 strategies
What are the discounters’ likely future plans? Successful internationalisation
Local differences
Customer centricity
Multi format, multi channel
strategy
Retrenching from
overreach
Shopper insight/data
Successful internationalisation
Local differences
Highly standardized range
Customer centricity
Product centric, quality first
– then price
Multi format, multi channel
strategy
One format: the box with
parking / delivery space
Retrenching from
overreach
Internationalizing (Lidl USA, SRB,
LTU) Aldi (ITA, AUS, USA)
Shopper insight/data
Limited shopper insight
Global Top 10, $bn sales 2015
Global Top 10, $bn sales 2015
Alibaba
485.0
Walmart
482.1
225.0
Amazon GMV
Costco
113.6
Kroger
109.8
Walgreens Boots
103.4
Schwarz
92.2
Tesco
89.3
Home Depot
88.5
Carrefour
85.7
Aldi
78.0
Where have the discounters come from?
•  German market origins and operational characteristics
Similarities - Business principles
Austerity (post 1945) & ruthless efficiency, one copycat of the other
Price leadership, EDLP, PL, product focus, not customer centric
Number of SKUs fits with store size, DCs, n of suppliers-> footprint flexing
Operational set up
Store details perfected over decades, nothing that could be subtracted
DCs, focus on simplicity, standardised approach, OSA, JIT, cost management
through bundling supplier trips into the DC
Private ownership, DE: training academy for executives as well as customers
Differences Lidl is much more vertically integrated (security, speed, costs, NPD)
2 fascia/format retailer (Kaufland), biggest Euro retailer in €, x markets
Lidl highly innovative: brands, PL NPDs, promos and store formats
Differences - rather in degree than kind
Hard – almost exclusively
PL
Soft (er) – introduction of
FMCG A brands
Tight SKU range
SKU range extension
Conservative expansion
policy
Aggressive expansion policy
Higher sales density
Faster top line growth
Differences - top level view
Sales: €56.7bn
€64.0bn
Stores: 9,995
10,362
Density: €5,976 sq/m
€5,806 sq/m
Differences - top level view
Sales: €63.4bn
€74.0bn
Stores: 11,086
11,077
Density: €4,389 sq/m
€4,939 sq/m
Understanding their success…
•  …from a consumer perspective: marketing, pricing, convenience, quality and
brands
Private label strategy
PL strategy disables price comparison, Aldi product specs (quality/
contents) as price floor for the sector in DE
Lidl PL as Pan EU - huge scale benefits. Aldi, more local approach,
but difference in magnitude
Aldi sales per SKU much bigger than Walmart
Quality and brands
Premiumisation: shifting quality perceptions, deluxe as Pan EU umbrella range,
overstretch
A brands added where PL is weak - baby food, h&b etc - but only there
Price leadership as defining business principle for Aldi
Consumer perspective: drivers Reduced choice (!!!), speed at which shoppers get out of the store
Trust, tight range works together with price leadership and EDLP
Exclusive product, non food promos, premium food SKUs for holidays
Convenience
Growth driver: the addition of fresh and bake off
Drawing footfall and building baskets, bake off as loss leader
Move towards neighbourhood shop - local player
Tripple supply, replenishment costs, supply chain
Reduces risk, if one supplier is down, others can pick up
Reduces transport cost and lead times- different bases around
country, Aldi and Lidl pick up, grouping trips
Introduces (price) competition between suppliers on same PL
Tripple supply, replenishment costs, supply chain
usually two deliveries - avoid night shift and double pay
replenishment - 20 min per pallet
all processes optimised for speed, SRP, pallets etc
Impact on other retail •  Should other retailers be competing, or co-operating? 7 Strategies - 3 of which are counterproductive
1) Private label proposition relaunch
2) Price wars
3) Discounter launch or acquisition
7 Strategies - 2 are tried and tested
4) Co-location strategy
5) Convenience retailing
7 Strategies - 2 on which the jury is still out
6) Online retailing
7) Raising buying synergies (France)
Footfall & loyalty, colocation
From competition to cooperation
Following consumer expectations and behaviour/use case
Aldi dm tie up - defensive against Lidl
What are the discounters’ likely future plans? •  The discounters have found that investment in-store in fresh and bake off has
worked very well. What is next?
Problems and potential Problem: finding right locations (perfect: box with ample parking
space)
Heavy competition, general shift to smaller basket size shopping, more
trips etc - real estate costs, new thinking required
Potential: DE discount channel ~ 40%. In UK? DE and UK attitudes to food similar
(not France) - no natural ceiling, depends on store estate
Australia
Aldi: 396 stores (end of 2015).
AUS$700m investment: 130 stores and two DCs.
Sales of AUS$6bn, pre tax earnings: $261m
Aldi builds out DC, then stores, takes suppliers with it
Australia store visit, Sydney Double Bay
80 new stores within 1 year, most ever in OZ, south and east. More
stores than many EU markets
20% + in demand forecasted, 10% share in Eastern markets,
benchmark, NZ next?
Some flex to the model (alcohol sales, pricing levels, SKU counts)
Lidl’s new format Outlook - FMCG A brands
Premiumisation: from price to quality/fresh, move away from “hard” discounter
image, Lidl’s wine promo attracting different demographics
FMCG A brands, Lidl 94% Aldi 96% PL, limited shelf space for Brands
Margin dilutive, enables price comparison, control over presentation in
store and logistics
The Coca Cola case study
Oct 2012 - Feb 2013, Coke listing starts, PL suffers, but success
overall, moderate pricing level, then Aldi cuts prices (leadership)
2014: Lidl delists Coke after price hike, Coke loses €150m in sales, Rewe and Edeka
attack with heavy promotions, Pepsi gets dragged in
March 2014: Coke returns to Lidl (no Sprite/Fanta), Aldi lowers price
again, deflation of entire category, Verdict: volume growth up, success?
Outlook - Lidl Online
Deluxe online in Spain
DE: Lidl Vorratsbox (Pantry), Kochzauber
Opportunity to roll out a click & collect offer - integrate into store
Vertical integration in China
The Tchibo example - the non food opportunity
taking on all the risks but also benefits, supply chain management
supporting the online roll out - much more clothing and non food
Aldi online - streaming, UK launch 2016 The Napster tie up- copying Prime?
non food online, big opportunity with vertical integration, PL branding
UK launch 2016 - non food for now
Conclusion & recommendations
Conclusion
Grocers: think about co-location strategies
FMCG: Lidl, Pan Euro promotions (wine), scale and premium
Discounters: online push, click & collect, home delivery
Other retailers: online & service, 3P marketplaces
37