On a recent visit to Munich, Germany my wife and I shopped in a Lidl. Lidl is a global discount supermarket chain, headquartered in Germany, that operates over 10,000 stores across Europe. They offer prices that Walmart can’t touch.
We bought a bottle of wine, a decent brand, a large box of mint chocolates, and a Liter of Coca Cola Zero. The charge was 5.22 Euros, $6.10 in the US. The same price at our local warehouse discount grocery store here in the US would probably be at least $14 – ten dollars for the wine, three for the chocolate, and one for the cola.
The Lidl Supply Chain
There is a supply chain story here. Here is what the web site and a little independent research reveals:
- These are small stores that have a limited number of stock keeping units. “Instead of offering a myriad of brands in every category, our stores offer carefully curated selections…” Unlike traditional supermarkets with an average product range of 10,000 food and non-food items, or big box stores with as many as 50,000 items, Lidl offers between 1,000 and 3,000 products.In red wines, we had perhaps ten choices. In contrast, at our local discount big box store, there are several aisles devoted to just red wine. But limited choices don’t have to mean bad choices. This year Lidl won several medals at the Indy Independent Wine Competition and LA International Wine Competitions.
- “You’ll notice while shopping at Lidl that most of our assortment is our own private label – around 90% of our products, in fact. This means we’ve especially developed these products to match our high standards and allows us direct oversight of product integrity. Each product undergoes a rigorous testing regimen, which includes taste, quality and sensory testing.” Global and national branded products cost more. Lidl’s products don’t have that mark-up. And small, hungry manufacturers will settle for smaller profit margins.
- “We keep overhead to a minimum and eliminate any unnecessary costs. Take our ‘bring your own bag’ policy. Not only does it mean we don’t build the cost of bags into our prices, this policy also saves you time at the register and is a greener solution. Additionally, we display our products in custom boxes instead of replenishing and stocking item by item. Our associates simply replace the boxes as needed, saving hours every week on stocking shelves. These simple steps allow us to pass our savings on to you.”They aren’t kidding about the low overhead. The look and feel of the store was stark, there was nothing fancy about the neighborhood (lower real estate costs), and the staffing was clearly lean.
- They compete with an Every Day Low Price strategy where promotions are minimized and demand is far more stable. Promotional surges can be hard for a supply chain to efficiently handle. Stable demand promotes higher inventory turns. Further, in general, discount retailers are not as concerned about product stock-outs as other retailers. Traditional retailers consider it a lost sale. Discounters would rather error low on the forecast and trust that customers will pick a competing brand. This also drives high inventory turns.
- Merchandising and supply chain management are well aligned. In the US, the Head Office Supply Chain Department is “split into two distinct areas: Supply Chain and Layout Management. In the Supply Chain area, the department has a strategic role, focusing on optimizing both the availability and freshness of product. The Layout Management team supports store operations in determining the optimum placement of product groups and individual items.”By having merchandising and supply chain operations report up through the same organization, product revenue contribution, a core focus of most retailer’s merchandising department, and cost savings from efficiencies, a focus for supply chain management, are better aligned; growing product category revenues does not come at the expense of an efficient supply chain. Lidl stores in a region have the same layout, which leads to both warehouse and store replenishment efficiencies.
- Lidl has grown fast. This helps to support a denser and more efficient transport network. In the UK, for example, three Distribution Centers support 640 stores.
Lidl Store Opening in Richmond, VA
Lidl recently opened its first store in the US. Should Walmart, BJ’s, and Amazon be worried? Absolutely!