Opinion: The Lidl deception
Sun Tzu’s The Art Of War famously observes that, “all warfare is based on deception”. Although not warfare in the traditional sense, Australia’s grocery retail landscape is being impacted by a form of deception, as practiced by the German retailer, Lidl.
Although non-committal on entering Australia, industry analysts believe that Lidl is actively working on a strategy for not only entering Australia, but actively competing and winning in Australia. The question that remains to be answered is – is Lidl coming to Australia?
Lidl is owned by The Schwarz Group, one of the largest retailers in the world with global revenues in excess of $100 billion. With more than 9900 stores, Lidl is on a non-stop path of growth. Based on a review of Lidl’s operations and geographic preferences, all signs indicate that Australia is a geography that meets Lidl’s requirements for entering a market. In addition, due to the size of Australia’s grocery market, estimated to be in excess of $90 billion, Australia offers significant opportunities for generating revenue.
Another reason for believing that Lidl will enter Australia is the success of Aldi operating and expanding across Australia. Aldi has proved that consumers are attracted to low prices in a no-frills environment. Aldi has also proven that it can take market share away from Coles and Woolworths with alarming ease. A truism within grocery retailing is the saying, “Wherever Aldi goes, Lidl is soon to follow”. When it comes to Australia, Lidl is certainly soon to follow, as Aldi has provided the playbook for success.
A question some may be asking is whether or not Australia can support two discounters? The answer is an unequivocal “yes”. Based on results from multiple consumer surveys, Australian consumers have a desire for options and low prices. After years of unchecked supermarket sector dominance by Coles and Woolworths, consumers embraced Aldi’s low prices when the German discount operator entered the market in 2001. Every metric indicates that Lidl will find similar success in attracting consumers when it eventually enters the market.
Winners and Losers
Australian consumers will undoubtedly benefit from having the two best discounters in the world operating in the country, making the consumer the biggest winner. What’s unique about Aldi and Lidl is that they have learned to operate and compete in close proximity of each other without causing undue harm to either. It helps that Aldi and Lidl are so different in appearance. Lidl has larger and brighter stores, whereas Aldi operates what many consider to be excessively plain stores. Lidl offers consumers a larger number of SKUs, whereas Aldi offers a smaller selection. Simply put, Aldi and Lidl know who their customers are and have each perfected a business model that attracts the type of customer that they desire.
Suppliers will win by Lidl entering Australia as they will more than likely find willing partners in Aldi and Lidl who will want to expand sourcing locally as much as possible, including potentially manufacturing their private label products in Australia. It goes without saying that suppliers are hoping for Lidl to enter Australia.
By far, the biggest loser will be independent grocers, followed by Woolworths and Coles. Aldi has already proven that it can take market share from its competitors, and Lidl will find similar success. Using history as a guide, when Aldi and Lidl both enter a market, traditional supermarkets immediately attempt to compete on price, with little success.
All indications point to an all-out price war breaking out as Coles and Woolworths will attempt to hold onto market share with neither being successful over the long run. Independent grocers will slowly but surely disappear from the landscape as they have little chance of competing or winning against Aldi or Lidl.
Will Lidl win in Australia? Yes, against independents, Coles and Woolworths. Will Lidl beat Aldi? Highly unlikely.
All retail is competitive, but few places in the world offer a more competitive grocery landscape than Australia. Only the UK can be considered to be more competitive, followed by the United States. Could Lidl end all long-running speculation about their plans for Australia and publically announce their intentions? Yes. But doing so now would be unwise, according to Sun Tzu:
“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near”.
Business strategy, like military operations, can benefit from employing deception.
If Lidl articulates its strategy, Aldi, Coles, and Woolworths will immediately go to work formulating counter strategies to minimise Lidl’s chances of success. By providing as little information as possible, Lidl is ensuring it is keeping its future competitors off balance and guessing.
Coles, Woolworths, and Aldi all have the advantage over Lidl as they are currently operating successfully in Australia. Lidl has no choice but to be deceptive. As with all deception, however, at some point the truth becomes known. Odds are high that within 12 to 24 months, the deception will end and the truth will be told – Lidl is coming to Australia.
Brittain Ladd is a business strategist and retail commentator.