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?