Interesting times ahead for Lidl – the German hard discount food retailer. Forty years after its “alter-ego” Aldi entered the US market, Lidl opened its first store in Virginia in the past couple of weeks. It plans to roll out another twenty or so by the end of the year and in the next twelve months plans to have one-hundred stores across Virginia and North and South Carolina. It has further plans for developments in Texas and other north-eastern states.

This is an interesting move because the US grocery market is highly competitive: long since dominated by giants such as Wal-Mart (which holds around 22% of the national market), Kroger and Target. It is also a sector which has experienced a downturn in demand and is dominated by a focus on ever-lower prices. Arguably the market is experiencing over-capacity in terms of the number of retailers operating in this space.

Retailers have anticipated this rumoured entry by Lidl. For instance Aldi has spent £5 billion on a major overhaul of its stores and has continued to open new outlets across the nation.

For me it is an interesting move for Lidl precisely because retailers in Europe and particularly the UK have constantly failed in the US market. As far back as the 1980’s Marks and Spencer experienced a major failure. More recently Tesco, with its “Fresh n Go” concept also encountered a sobering lesson. In the latter case it claimed to have done extensive research on the US food shopping patterns, preferences and so on, yet miscalculated the market and was forced to bow out in an embarrassing manner.

In addition Amazon has also made inroads via its Amazon Fresh concept and the ever-present growth of online retailing.

In our chapter on retail internationalisation I stressed the importance of learning by doing and learning to adapt, when retailers enter international markets. Cultures and shopping patterns can vary considerably. What might work well in Germany or Sweden may “bomb out” in Australia or Malaysia because of a fundamental lack of understanding of these existing differences. I was intrigued by this comment made by the CEO of Lidl US; Brendan Procter.

“It’s about what we have to do to adapt to the market” (quoted in Lidl opens first US stores as new era in food retail begins. Supermarket News (Jon Springer).  June 2017.

This view captures the essential challenge for any retailer contemplating entry to an international market – particularly one as complex and challenging as the USA.

Lidl is often portrayed as a secretive and intensely private operation. While Aldi has med the earl move into the USA many commentators put forward the view that Lidl displays more innovation and ingenuity in terms of its overall business model.

In the light of previous failures such as Tesco it might be beneficial to identify and assess the approach adopted by Lidl as it takes on the established and hardened retailers in this sector.

Firstly it has made adaptations to the size of its stores. Typically the US Lidl store centres around 36,000 square feet – of which 21,000 square feet represents the selling space. This means that it is around 35 per cent larger than its typical European store. This reflects the emphasis placed by US food retailers on selling space (much larger and carrying more items than Lidl).

It also has altered its exterior design. In the USA it has arching walls of floor to ceiling made up of glazed glass and extensive use of red brick in its construction. This is in sharp contrast to its European stores which are essentially made up of extensive use of aluminium panels. Research showed that this latter type of design conjured up an image of a typical car dealership in the minds of American shoppers.

Each store is designed around six aisles, with the first one containing the most popular items that are typically purchased by shoppers. Upon entering the store the shopper sees the bakery section in the corner. Lidl makes use of free samples to tempt and surprise shoppers and encourage them to make a purchase. At the end of each of the six aisles Lidl places its promotional offers. This is based on lower prices but emphasising the quality of the items. In this area they focus on using promotional pricing to attract and retain shoppers and educate them to how these offers work. For instance they make use of prominent signs with the slogan “While they last”. This focuses on the message that the items will not be available for very long at those prices. In similar fashion they rotate prices on selected non-food items such as clothing, again focusing on the short-term availability of items at promotional prices. They change the focus of the items each week or so thus focusing on the element of surprise.

“Fresh5” offers focus on 3 items in the Fresh veg and fruit and 2 items in the meat and seafood categories.

These promotional offers are typically around 12 per cent to 30 per cent lower than competitor’s prices.

Recognising cultural differences, Lidl includes a section carrying refrigerated craft beers – a popular and growing category in the USA.

Ninety per cent of items stocked are private labels. This represents a challenge as traditionally US shoppers have been suspicious of such brands – preferring the more recognisable national and international alternatives. However Lidl reckon that this perception is changing as shoppers become acclimatised to lower prices. Focusing on the quality of such items is also seen as a way of changing these views even further.

Lidl works closely with suppliers to ensure that they can meet the designated price-quality levels.

The smaller stores, linked to the smaller back-office requirements also can generate savings and efficiencies.

More importantly Lidl have picked up a trend where the average US shopper finds it increasingly irritating and time-consuming when attempting to navigate around larger stores that carry a wider ranges of items. The smaller and more focused approach in Lidl’s view makes for a more productive and efficient shopping visit.  This is based on the simple principle of “less is more”.

In order to capture the attention of the shoppers Lidl has signed up the German supermodel (with an American passport and high recognition in the US) Heidi Klum. She has designed an exclusive clothing range to tie in with the market entry.

As we might expect, the opposition are not sitting back. Aldi plans to open a further 900 stores by end 2018.

Wal-Mart continues to run price-comparison tests to close the gap with rivals such as Kroger, Publix and Albertson. They are also pushing suppliers to deliver on lower costs and lower prices.

Whole Foods is pushing its 365 chain of stores which focus on low costs and organic foods.

Lob in Amazon Fresh and you have a potent cocktail of aggressive competition.

We have to ask ourselves the following questions.

Will the focus on higher quality at a lower price work in the USA?

Have they picked the right states to launch this brand?

Have they acquired sufficient knowledge and understanding of the market to enable their adaptations to work and generate the business?

Have they established differentiation points that are meaningful and relevant to the US shopper?

Can Lidl ward off the anticipated moves of their main rivals in this market?

Let’s see what happen over the next eighteen months or so?

A key theme in the book is the ever-changing nature of retailing; in particular the relationship and interaction between the retailer and the shopper. This is manifested in the issue of personalisation.

We see this facet everywhere in every-day life. I am never ceased to be amazed by the obsession, not to say fetish that many young people have about their self-image. This is evidenced by the bewildering amount of times they change their profile on Facebook or their endless enthusiasm for taking “selfies” at every available opportunity.

I am not a psychiatrist but I guess an analysis of such behaviour would elicit the response that it is the desire to be unique and be able to differentiate the “self” from friends and colleagues.

This behaviour is also manifested in the quest for personalisation in retailing in general and in shopping behaviour in particular.

In the old paradigm retailers put together a set of offerings that were made available in physical stores for people to browse and make their purchases.

Amazon was in my view the trend-setter in moving away from this rather static and rigid formula. It offered items online but, making use of relevant technology, algorithms and data built on shopper’s initial purchases to get “deep down and personal” with them. They did this initially by providing extra help and guidance through the medium of reviews, shopper’s comments on their experiences of the product and so on. This inevitably led to more focused, personal and customised services, where messages and promptings 9mainly through emails) ensured that Amazon could almost shape, direct and “groom” shoppers towards items that reflected previous purchases. In short we witnessed the emergence of the era of personalisation.

Of course this raises issues as to whether such behaviour is unethical or invasive. We will briefly revisit this later in the blog.

In this initial phase such personalisation tended to occur almost exclusively within the context of online shopping. However in the past couple of years we have witnessed a raft of pure-play retailers and onmi-channel retailers also moving inexorably towards in-store personalisation.

This has occurred mainly through the confluence of technology and “big data”.

It can be strongly argued that this is the “holy grail” for retailers. What’s not to like about a situation where they can engage in predictive strategies based on personalised and focused data that can make shoppers more amenable to shopping with them? What’s not to like about designing and developing a promotional package of brands that are relevant to shoppers and where there is clear and unambiguous evidence that they like such items (based on past shopping behaviour)?

To this end we have seen the emergence of many data and technology firms that specialise in analysing “big data” about shopper’s behaviour and providing expert advice and guidance for retailers.

One such company is RichRelevance Technology. They carried out a detailed survey of 2,000 shoppers based in the UK and the USA in 2016. The focal point of the research was to assess whether shoppers found in-store technologies creepy or cool. The findings make interesting reading. For instance they found that in relation to the following technologies shoppers reacted thus.

Technology which scans products      62 per cent – cool

Open to receiving pop-up offers on devices when entering store – 52% – cool

Fingerprint technology to help with payment and automatic delivery – 47.5% – cool

Digital coupons – 43% – cool

Facial recognition software that targets customers in-store – 75% – creepy

Sales assistants greeting shoppers by name as they enter the store – 75% – creepy.

While shoppers are largely willing to provide basic information on age, gender and so on, they are more cautious about parting with details about income levels, spending habits and so on.

As always I inject a note of caution about such research: it is only a snapshot of one particular point in time and as we know, things move and change rapidly in the context of retailing.

However the results suggest that shoppers express some reservations about technologies such as facial recognition to a large extent. The reality is that retailers are using and may make more extensive use of such technology. An example of potentially invidious use of such technology can be found in the following example. What if a retailer, by using facial recognition, can automatically identify very important customers when they enter a retail outlet?

This category could be described as shoppers who spend a lot in the store, who are attracted by new product lines from luxury branders and who demand a high level of personal interaction and attention from store sales assistants. What’s not to like about a retailer using technology that immediately identifies such a shopper on a store assistant’s tablet and automatically brings up that person’s shopping history, brand preferences and attitudes to special promotional offers?

The shop assistant can immediately drop into a sales pattern where the individual is personally welcomed and greeted and is presented with new offers and lines that the retailer can be sure is relevant and will appeal to that shopper. Is this an invasion of privacy or the maximisation of the shopper’s and sales assistant’s time and efficiency? Ponder on that for a moment. The retailer is more likely to generate a sale and also use the opportunity to cross-sell or up-sell. The shopper (who is already in potential buying mode) is likely to feel wanted and loved by the personalised nature of the interaction with the retailer (via the sales assistant).

Less intrusive examples include interactive outlet maps which pop up on the shopper’s smart phone and which identify those areas within the store that contain items that the shopper has purchased before. This saves the shopper needless effort in trying to identify where these items are located and introduces a degree of personalisation that is potentially welcome and non-intrusive.

What about a situation where a male shopper is standing next to the shirts section in a menswear shop and suddenly on a digital screen the following pops up. “Hi Sean, here is our new line of pink shirts from Ben Sherman that has just arrived” After this pops up the person is exposed to a range of such shirts – with prices and special offers, appearing on a personalised digital screen. This is triggered and generated again from data that the retailer holds on your previous purchases of shirts in that store. Is this invasion or innovation? Is it intrusive? An irritant? Or is it a great way of personalising and deepening the relationship between the retailer and shopper?

My view for what it’s worth is that it can be either intrusive or helpful – depending on the relationship between the perceived benefits and costs to the individual shopper.

Potential benefits can revolve around time savings, potential discounts, extra loyalty points and potentially getting an early opportunity to purchase new lines ahead of regular customers. “Costs” include intrusion, the feeling of “big brother” endlessly influencing your behaviour and so on.

We need to get used to this type of personalisation. It is not going to go away and the “kids” of today are embedded already in this type of technology.

For “oldies” like me we need to get used to it.