Commentary: Implications for Grocery Retailers as Lidl Launches Stateside
While Lidl has made clear its plans to expand to the U.S., many grocery retailers may not have expected it to make its stateside debut quite so soon. Recent reports that the chain will open its first stores on U.S. soil this summer, ahead of schedule, mean that the pressure is on for domestic grocery chains to determine how to react to their latest challenger.
It is no secret that Lidl has been extremely successful in Europe, due in part to its efficient limited assortment and popular private label goods. But as Lidl swiftly enters U.S. territory, of particular note for U.S. grocery chains is its low-cost business model and low prices. With Lidl initially opening 20 U.S. stores and planning to establish 100 locations total within the year, grocery chains must determine how best to compete – before Lidl makes a grab for market share.
In response to changing consumer preferences and competition from convenience stores and online grocery players – as well as Aldi’s emerging success in the U.S. – many traditional grocers are already actively taking steps to change what they sell and how they sell it. The key to keeping pace as the industry evolves will be innovation. If grocery chains aren’t already considering new pricing, promotional, and store enhancement programs, they should be.
To fight back on price, grocers may adjust their own pricing strategies, trimming operational costs wherever they can to lower prices. Another potential approach for grocery chains is offering special promotions or discounts in hopes of differentiating their brand and offerings. Personalized offers for loyalty program members are a third option, and can serve the dual purpose of rewarding loyal customers and delivering targeted discounts on certain products to shift grocery spend in more profitable directions.
Grocers may also focus on store enhancement programs to improve customers’ in-store experiences. One strategy here may be executing store remodels to compete with shiny, new competitor locations. Another is positioning grocery stores not just as places to pop in, shop, and leave, but as convenient, comfortable destinations. In hopes of creating this type of enticing, welcoming environment for customers, many grocers are adding features like in-store cafes and seating areas to eat in-store. Some are even offering Wi-Fi, and engaging events like wine tastings and cooking classes.
But developing new programs is just a starting point. Every new initiative is an investment, so how can grocers determine which will add the greatest business value?
The best and most reliable way to answer that question is to test new ideas before rolling them out on a broader scale. By conducting an in-market experiment, grocers can test a new concept in a subset of stores and compare their performance with that of similar stores that carry on business as usual, quickly and accurately measuring the concept’s true impact.
Not all ideas will work as expected in all locations. Some are ideal for certain locations, but others are not. To optimize the investment, it will be important to understand not just the overall success of a program, but how the level of success may differ across the chain.
For example, adding a seating area in a suburban store may provide a social hub for the community, driving new traffic and boosting profits, but adding seating space in a city location may restrict space for inventory, potentially hurting revenue. Leveraging testing to understand where new programs are most effective, and in which locations, will help executives maximize the value of their data and develop actionable insights to guide their decision-making.
In an increasingly competitive industry, grocers have no choice but to innovate – to not just grow, but maintain market share, and drive their business. Strategically implementing new ideas is the key to success, and grocery retailers must carefully evaluate each potential program to determine which are most profitable before investing in widespread deployment.