business news in context, analysis with attitude

Forbes has a piece by Neil Stern, Partner at McMillanDoolittle, in which he says that German discounter Lidl may be having a tougher problem getting traction in the US than expected - the company “has appointed a new executive in Germany to oversee its operations in the United States. Though local U.S. management disputes aspects of the initial reporting of the reshuffle by a German newspaper, which pointed to ‘frighteningly weak’ performance at some of the current 37 stores, it does seem to be a signal that conquering the U.S. may be a bit more difficult than Lidl had foreseen.”

Stern says in his piece that he believes that the Lidl stores are overbuilt - “too large (25,000 square feet), too overly-engineered and too costly to operate. Eleven full-sized checkout lanes, as one example, adds costs to the box and seems overkill for demand.” He also believes that there is too much reliance on nonfoods for US consumers. Stern does give high marks to the stores’ bakeries, wine departments, produce and private label prices.

Stern concludes: “Lidl is an enormously tough competitor. Well capitalized and easily capable of making course corrections, it is not to be taken lightly, despite some early miscues. The road to 500 or 1000 or 1500 stores, however, must begin with a store model that works. I don’t see that yet. It will be interesting to see if new corporate management makes any significant course corrections.”
KC's View:
The thing that people familiar with Lidl tell me is that it is a mistake to think that Lidl will suffer the same fate as Tesco’s aborted Fresh & Easy format in the US. Lidl has a lot more freedom to make mistakes and recast itself because it is a private company without the same demands that investors can make of a public company like Tesco.

I’ve never believed that Lidl will totally disrupt the US supermarket industry; I’ve been doing this way too long to think that. (When I started writing about this industry, there were fears that Cub Foods was going to destroy every other format.) But it can have an impact, both in terms of specific operations and consumers’ expectations.