Aldi and Lidl looking to keep upmarket customers
DESIGNED to host a high-end retailer like the homeware and fashion chain, Avoca the ground floor of Cork’s €150m Elysian tower instead has an Aldi, which will open on December 11. This is another example of changed times and of sharply-adjusted realities.
But much as it reflects the Elysian’s once-lofty hopes and its pragmatic acceptance of a paying tenant after five years of vacancy, it tells us much societally about the bedding-down and broad acceptance of German discounters like Lidl and Aldi, among initially-aloof Irish consumers.
Aldi and Lidl arrived on Irish shores 15 years ago, almost back-to-back, in 1999 and 2000 to middle-class amusement. Aldi and Lidl had strikingly similar logo liveries of yellow, blue and red — like two women turning up at a wedding, in practically identical outfits.
And while they may have arrived as garishly dressed bridesmaids (and it did take Irish shoppers time to differentiate one from the other), Aldi and Lidl have marched themselves up the aisles: there are 140 Lidl outlets and 111 Aldis, with 6,000 employees between them. They’re expanding like no other supermarket and have bedded down in the Irish psyche.
Almost sibling supermarkets, they arrived at the peak of the Celtic Tiger boom with value-driven, cheap and cheerful offers and remarkably small product ranges. Yet Ireland then was in thrall to choice, big brands, designer gear and reckless spending: spending that in hindsight was done on lots of borrowing.
The new kids on the block were, at first, most readily frequented by non-nationals, who had little or no previous brand loyalties. But gradually the Irish began to realise that while the prices were rock bottom, the quality was as good, if not better, than other supermarkets.
And so native Irish shoppers began to cherry-pick, via so-called ‘basket-splitting,’ using the German discounters as a ‘’secondary’ shop. Aldi and Lidl facilitated what’s since been dubbed ‘hybrid shopping’, trading down on everyday food purchases so they could survive wage cuts, unemployment or else in more affluent homes, so they could trade up on more premium products (and pardon the trade’s marketing speak) in ‘socially and emotionally relevant product categories’.
Stephen Wynne-Jones, editor of the trade-watching journal, Checkout Magazine, agrees that many Irish families had long maintained a loyalty to the country’s ‘Big Three’ of Tesco, Dunnes and SuperValu, and only visited Lidl or Aldi for things like sliced meats, cheese and the heavily advertised DIY specials.
But, as the Germans now rapidly expand their higher-quality ranges, like Lidl’s Deluxe and Aldi’s Specially Selected to their wares (along with saffron, lobster, kangaroo, ostrich meat, and pricier wines), a war is being waged on a broader product platform than Lidl and Aldi’s earliest days.
Tesco has fought back with their Price Promise; Dunnes with cash-back vouchers and familiar brand names at round-euro prices while SuperValu stress local links with Signature Tastes, on top of sponsorships like the GAA and Tidy Towns.
Competing supermarkets’ in-house Christmas magazines are proof of the drive for this festive season’s market share, which is shaping up for a bumper spend.
This month’s expected headlong trolley rush is the end-of-year cherry-on-top for retailers everywhere, as Irish families prepare to splurge, on average, €1,500 on Xmas groceries and gifts.
Aldi and Lidl have splashed out on 52-page Christmas magazines — and SuperValu’s Fresh Christmas magazine has a hefty 98 pages.
During the recession, “shopping-around was commonplace, and each supermarket got their share,” Wynne-Jones says of the settling-down periods of Aldi and Lidl but, with a finger on the country’s retail conveyor belts he says “in the past year, driven partly by increased vouchering, there has been a move back to the big weekly shop.”
However, instead of reverting back to traditional type (ie, a ‘Dunnes’ or ‘Supervalu’ shopper), consumers are switching their ‘main’ shop to Aldi or Lidl, he says: “the average basket size in Aldi and Lidl has grown quite considerably in the past year, hence its consistent double-digit share growth”.
That double-digit growth has been facilitated by the rapid spread of the new German stores, easily built on sites of little more than an acre, and their popping up in unlikely locations, like a basement in Cork City’s Cornmarket Street (Lidl), or under 17 storeys of luxury apartments at the Elysian.
The budget-conscious Lidl and Aldi stores are physically smaller than Dunnes (116 stores in the Republic) and Tesco (142 Irish stores); but they’re on a size-par with many provincial town SuperValus (193 outlets nationwide).
Real estate company CBRE’s Bernardine Hogan says because of Lidl and Aldi’s business models they have to go into a broad variety of catchments – especially as they don’t offer online shopping or home deliveries. “Home delivery has not caught on as much here as in the UK,” she says.
A crash in Irish property and in site values also means Aldi and Lidl are getting land for far less: currently, CBRE have five Dublin City sites under offer for Aldi, says Ms Hogan. As a mark of intent, Aldi last year opened a second, €100m, 600,000 sq ft distribution centre to serve Munster, parts of Connaught, and future stores.
Lidl and Aldi are steadily closing in on Ireland’s ‘Big Three’ — combined, the duo may match their market basket share in another year or two of ongoing store openings. The prize?
Well, it’s a national market worth billions of euro. One-third of Irish household spending goes on groceries, while the multiples here rake in €9 out of every €10 of that spend.
After a bad year on many fronts, Tesco looks like being toppled very soon from its poll Irish supermarket position.
With its four store sizes, from Tesco Express to Extra, Tesco was traditionally the ‘top shop’ but now its hold has slipped to 24.9% of grocery market share, with SuperValu closing in for number-one position at 24.5% (helped by its 2011, €229m swoop on Superquinn,) and with Dunnes just behind, at 23.59%, according to the latest ‘Kantar Worldpanel’ consumer monitor.
This latter puts Lidl at 8% and Aldi at 8.4% or a combined 16.4%.
Kantar’s Irish commercial director, David Berry, last month noted that 63.4% of Irish householders had shopped in a Lidl and Aldi in the past three months.
The economic crash was an obvious boon to Lidl and Aldi’s ‘no frills at the tills’ business model.
“There’s been a relentless quality to their expansion,” says Sean Murphy of Retail Excellence Ireland, who also welcomes the first signs of recovery in the grocery sector as official third-quarter trade in 2014 was up 1.1% — the first rise in seven, long years.
And, says REI’s Mr Murphy, that Q3 1.1% growth was despite a dip in one of those three months, August, as foreign holidays started to find favour once more with Irish families, so national spending dipped that month.
“There’s signs of more confidence in the future and recovery,” REI’s Mr Murphy says.
Curiously, Ireland’s slight rise in grocery spend, after so much belt-tightning and austerity (and how much higher will that spend soar at Christmas?) contrasts with a first, historic downturn in the UK’s grocery market: during summer 2014, over 50% of UK shoppers visited a Lidl or Aldi — in a market long-dominated by Tesco, Asda, Sainsbury’s and Morrison’s.
Shadowing their Irish experience, the two German discounters saw a 24% surge in their UK market share, to now jointly stand at 8.4%, up from 6.8% last year.
Sober publications, like the Daily Telegraph, have had headlines on how Aldi (with its multi-medal-winning brands) has won a British class war, becoming the UK’s fastest-growing chain with over well over 500 stores.
As Ireland says goodbye to austerity, Aldi and Lidl are keen to hold on to their hard-won customers and to drive them up the value chain to their ballooning range of mid-market products.
Lidl and Aldi will always have the value brands and wines for under a tenner, but now— shock! — Lidl offers a bottle of superior French red for €65.
For Christmas, Lidl have been taking orders for Jamon Iberico (air-dried Iberian ham leg) for a ‘mere’ €99.99.
In the depth of Ireland’s recession, pigs would have flown faster than these Iberian hams.
How LIDL keep upmarket customers
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