The popular German discount grocer is struggling after a successful US launch in June this year. Following strong sales out of the gates, foot traffic has slowed in recent months. Although the US launch inauspiciously coincided with Amazon’s surprise purchase of Whole Foods, Lidl’s struggles are likely not the result of the online giant’s aggressive move into groceries. The same can’t be said for a long list of other grocers and food delivery companies.
Lidl probably has what it takes to steal market share in the US and defend against Amazon’s encroachment. The company is growing fast in Europe and has strategically prepared its attack on the US market. Early consumer feedback was strong following the company’s opening of 9 stores across Virginia and North and South Carolina, where it stole market share from Walmart and Kroger (some of that was recaptured by competitors in the subsequent months). Lidl now has 37 stores in five states and expects to open 100 total along the eastern seaboard by next year.
Lidl’s grocery model is based on a limited selection of store-brand goods in buildings with much smaller square footage than a typical grocery store (think: Trader Joe’s). During its early run in North Carolina, Lidl made good on its promise to shoppers, offering a basket of goods on average 39% cheaper than Food Lion.
Analysts see the early struggles for Lidl based more on mistakes related to store locations and inventory rather than issues with the business model. The article cites a Richmond strip mall location and sales of European-centric products like cycling shoes and badminton sets as examples of market misreads. Executives insist the company is still in pilot mode testing what does and doesn’t work.
The prognosis ultimately is positive, assuming Lidl continues to adapt to the US consumer. A Bain report predicts that the discount grocery segment will grow 8% annually through 2020, five times greater than traditional grocers.