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What is success formula of supermarket chain Lidl and will it enter Ukrainian market

Photo: gondola.be

Photo: gondola.be

It is too early to say that the project will "make a hit" in Ukraine, as, for example, in Poland.

Information about the possible entry of the European food retail leader, the well-known German discounter Lidl, into the Ukrainian market can be compared to the effect of an exploding bomb. Although there is no official confirmation from the company yet. In its latest statement after the information leak, Lidl did not name Ukraine among the priorities, however, there was no denial.

The Page has decided to figure out what is the secret of this business model's success and whether it can take root in Ukraine.

What is Lidl and what is it for?

At its core, the German chain is a tough discounter, which attracts buyers. The concept is built on the slogan: we sell you high quality products at the lowest price. Here's what else sets it apart from other outlet chains:

  • very low prices,
  • limited assortment with a focus on goods of constant demand,
  • focus on own chain brands, working with Private Label—a system of partners-manufacturers of goods for the chain under own trade marks in various countries of the world; own-produced goods are the most affordable in each of the categories.
  • another feature is the cheapest prices for fresh vegetables and fruits, moreover, with high quality and safety requirements for the product,
  • saving on staff,
  • placing goods directly on the shelves in the original packaging of the supplier,
  • a bonus in promotion is a loyalty system in the form of an application that works in different countries of the world.

Successful world background

Although the history of the company goes back more than 90 years, German discount entered the wide world in the mid-80s. Since then, the chain has expanded to 12,000 stores in 33 countries around the world, employing over 30,000 people. However, the largest number of stores in the chain is in its native Germany—about 3,200.

Lidl's advent in Poland, where it had entered 8 years ago, was also a great success. Now the local chain here has more than 700 markets with a turnover of more than $6 billion.

For more than 40 years of foreign experience Lidl lost only in one market—in Norway in 2008. The project entered the USA with little success. But the discounter managed to annoy local American retailers. According to last year's research of the University of North Carolina, the opening of Lidl in Long Island, New York, forced competitors to cut food prices by 15%.

Ukrainian realities

However, it is too early to say that the project will "make a hit" in Ukraine, as, for example, in Poland. Surely, the arrival of a much larger player in Ukraine will completely change the balance of power in retail. Firstly, the company will "unsettle" local chains with its aggressive marketing. Last month, the chain entered Latvia, where 15 of its stores were immediately opened—on the first working day.

Secondly, in terms of turnover, the Schwarz Group, which sells grocery stores under the Lidl brands, is several times higher than the international market chains operating in Ukraine. Even Metro Cash & Carry or Auchan. The turnover of the Schwarz Group supermarket chains is almost equal to the GDP of Ukraine in 2020.

As for Ukrainian consumers, they have an idea of the chain—both from foreign visits to Europe, as well as from numerous Internet sites for ordering products from the German chain.

According to the Head of the Strategic Consulting Department at UTG Konstantin Oleynik, international food operators are already working in Ukraine (Metro cash & carry, Auchan, and NOVUS), others were previously presented, but closed down (Billa and SPAR). "So, Ukrainians are ready for foreign grocery chains, and the degree of loyalty of the population will depend on the development strategy, marketing promotion, price positioning, quality of service and additional services," the expert explained.

As Andriy Zhuk, Co-Chairman and Chairman of the Board of the Association of Retailers of Ukraine, noted in a comment to The Page, the German supermarket chain Lidl is undoubtedly a strong player with international experience, but Ukrainian realities should also be taken into account.

"Its popularity is related to quantitative private labels, and it will be able to compete with the leaders of Ukrainian retail. Its entry into the market will change the competitive field—this will affect both the pricing policy of retail chains and the assortment policy. Also, the entry into the Ukrainian market of an international player will affect relations with suppliers," the expert believes.

However, according to Zhuk, it is still too early to say what strategy Lidl will choose in Ukraine. Analyzing its tactics of doing business in other countries, the expert suggests that the discounter will focus on opening stores both in cities and in the suburban area.

"It should be noted that the main competitor of Lidl in Ukraine is, first of all, not other retail chains, but the peculiarities of doing business in Ukraine, weak protection of international investments, high acquiring rates, and low purchasing power in the regions," he adds.

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