Lidl’s US business model will evolve, says Bernstein: ‘Aldi prices with Harris Teeter service and quality is not sustainable’

By Elaine Watson

- Last updated on GMT

The bakery was a big hit with Lidl shoppers that spoke to Bernstein analysts this month
The bakery was a big hit with Lidl shoppers that spoke to Bernstein analysts this month

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“Lidl will be a very real threat for small scale grocers that lack differentiation or operational efficiencies," predict analysts at Bernstein. However, its success in the US “is by no means a foregone conclusion,” they caution.

In a briefing note penned on July 21 after a visit to Lidl stores in North Carolina, Bernstein analysts queried the sustainability of Lidl’s business model given that its US store formats and locations are distinctly more upmarket – and costly to operate - than their European counterparts, yet prices remain low.

“Aldi prices with Harris Teeter service and quality is not sustainable… But the model won't be static from here. In our view Lidl still has a lot to learn, including in general merchandise, the labor model and adapting the wine offer. We expect the model to flex and adapt to the US market as the company searches for the optimum proposition.”

'No one cared about organic or allergy friendly products'

While shopper focus groups quizzed by the analysts loved Lidl’s instore bakery and its deals on fresh produce, few referenced its clean label, organic, locally-sourced and free-from product selections unprompted, they observed: “We were surprised that what had excited us analysts had bypassed consumers​.”

Despite the fact that organic products have in many cases been given prime real estate on the shelf, and Lidl has made much of the fact that its private label products don’t contain certified synthetic colors, trans fats, or added MSG, they added: “On values, full basket destination, the new concept in general, we found little resonance with consumers.

“No one cared about organic or allergy friendly products – although with prodding we heard a slight preference to buy locally sourced products…. They had a little punnet of heirloom tomatoes that looked really, really good for $2.49. They'd all gone, there was only left one the shelf. They were, obviously, very popular.”

Lidl US Wine Wall

‘The wine selection was too high-end and that may change’

In a conference call discussing the findings, senior analyst Bruno Monteyne added: “Our respondents felt Lidl would be a success, but positioned it as a better quality discounter rather than a competitor to the supermarkets… The extended product range didn't convince people that Lidl offered full basket shopping, with most saying they would still need to go elsewhere to get everything they needed.

Theymade it very clear if they need cakes for parties, or they need hair colorants, they want Heinz ​[which Lidl doesn’t stock], or they want some general merchandising as well or bigger brands, they will head back to Wal-Mart, Food Lion or Harris Teeter, whatever their preference is.”

Meanwhile, the wine selection “was too high end​,” noted senior analyst Ali Dibadj.  

“At the Lidl store that we saw first thing in the morning, milk was being sold at $2.27 a gallon, that's a very low price point considering where raw milk prices are right now. In fact, I saw even sharper price points at a number of the other stores that we shopped in the area. So, clearly, there's loss leadership happening in certain categories.”

Alexia Howard, senior analyst, US food, Bernstein 

Lidl presents the greatest threat to Mom & Pop stores

When it comes to the competition, Lidl - which plans to open 21 US stores by the end of this month in Virginia, North Carolina and South Carolina – probably poses the greatest threat to smaller, independent retail chains, said Monteyne.

“Close to 20% of the US market is still in the hands of small little chains whether mom and pop stores or people with 50-100 stores in an area. They will struggle to have the scale and the quality to really compete, and that will force the further shakeout of what we call the lower hanging fruit or the soft underbelly of smaller grocery retailers in the US.”

Lidl store interior USA

‘Clearly, there are a number of the largest CPG companies that are either still playing hardball or still in negotiations with Lidl’

So what does Lidl’s arrival mean for CPG brands?

“Many #1 brands are stocked at Lidl stores​ [eg. Procter & Gamble and Coca-Cola], and the brands that are there get a surprisingly large amount of floor space,"​ said senior analyst Alexia Howard. "​[But] it’s striking to see those that aren't ​[Heinz, PepsiCo, Clorox, Colgate, Kimberly-Clark]. 

“Clearly, there are a number of the largest CPG companies that are either still playing hardball or still in negotiation, and they may need to fix that because there may be some of those really strong brands in certain categories that they need to get in order to have a credible one stop shop offering.”


Lidl’s US stores – with a larger footprint (20,000 vs 10,000 square feet), larger range (up to 4,000 skus vs 1,000-1,500 skus) and a greater emphasis on organic, locally-sourced and free-from products, higher-traffic locations and higher-quality fixtures and fittings (timber) – cost more to operate than their European counterparts.  

What will Lidl mean for mid-tier brands?

For mid-tier brands, however, the rise of discount chains such as Aldi and Lidl is clearly a challenge, given that their business model is primarily fueled by private label products interspersed with market-leading brands, noted Howard: “The hardest hit section is going to be those mid-tier brands, i.e., the tertiary brands, the number three, four, five brands in the stores for each category.”

And some of them might have to consider working with Lidl to produce private label products, predicted Dibadj.

“They're going to have to make private label. … It's one of those things I think they're going to have to face to facts on if you're number three, four, five brand. It allows you to have more control of the shelf space and of the pricing to certain extent and certainly has a capacity utilization question that you can support with the cost base they have.”


Part of the Schwarz Group, the largest retailer in Europe and one of the largest in the world, Lidl keeps prices low by offering a limited range (SKU count) and a strong private label offer, although it also stocks some national brands. Its first US stores opened in North Carolina, South Carolina and Virginia last month. 

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1 comment

The US is a diverse market area that Lidl needs to learn

Posted by Robert Wurz,

You need kosher in NJ & NY, but in VA not so much.

In NY you need Hoffmans hotdogs and salt potatoes in PA Nathans hotdogs and Hanover potato chips.

In MD it's all about blue crab in Mass it's all about the lobster.

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