A recent price check on a basket of 20 items by Jefferies analysts found that Lidl was about 9% cheaper than Walmart.
The European grocery chain Lidl has arrived in the US and bargain hunters should be excited.
A recent price check on a basket of 20 items by Jefferies analysts found that Lidl was about 9% cheaper than Walmart, the largest grocer in the US. Lidl claims to offer products for as much as 50% less than rival stores.
So far, Lidl has opened 10 stores along the East Coast and plans to open 80 by the middle of next year.
Lidl has already upended the grocery-store market in the UK, sending some of the largest supermarket chains into vicious price wars. Analysts are now expecting it to do the same in the US.
How does the grocery chain manage to keep prices so low?
1. Most of its products are private-label brands
Around 90% of the products in Lidl stores are private label brands. These are products manufactured specifically for Lidl.
The benefits of selling these brands are two-fold. Lidl cuts out the middleman, which eliminates any additional costs from a supplier. The company also has greater control over manufacturing costs and can set its own prices. In turn, this means that products can be sold for higher margins than national brands as the initial costs are much lower.
2. It has a limited selection of products
"There is a lot of volume through a limited number of items," retail analyst Scott Mushkin of Wolfe Research told Business Insider. For instance, according to Mushkin, the store might only stock two types of mustard: its own brand and a national brand. This limited variety gives Lidl more buying power with its suppliers as it is ordering larger quantities of fewer products.
Doug Koontz, head of content at research firm Planet Retail RNG, told Business Insider that Lidl has around 2,000 different products in its store. This is considerably less than the 20,000 unique products stocked at equivalent grocery stores or the 60,000 unique products typically stocked at a supercenter, he said.
3. It stocks "fast-moving items"
Lidl favors everyday items that shoppers buy often, Mike Puglia, director of retail insights firm Kantar Retail, told Business Insider.
"The assortment is limited to the fastest moving items, which drives gross profit dollars," he said. "Higher velocity items mean less money tied up in inventory."
In a visit to one of the new stores, Puglia noticed that the focus was on everyday items such as cereal, juice, and produce, rather than niche or specific products.
4. Its stores are relatively small
Lidl's new US stores are, on average, 20,000 square feet with about six aisles. While this is larger than its European sister stores, it's only about a quarter of the size of a traditional US supermarket like Kroger.
5. It keeps labor costs low
Lidl stores are thinly staffed to keep labor costs down.
To limit the amount of human interaction, Lidl has efficient technology and automation in the back room, Koontz told Business Insider. In the store, customers are required to weigh their produce and bag their own groceries.
Store employees are also cross-trained so that they can work in any section of the store.
"As a result, staffing is more flexible and efficient," Mike Puglia from Kantar Retail told Business Insider.
6. It displays products in the boxes they were shipped in
Lidl displays most of its products in the packaging it was shipped in, which speeds up the restocking process and requires less manpower.
In a visit to one of the new stores, Mushkin noticed that milk was stacked on carts, which had wheels below. These carts are stacked by suppliers and wheeled directly off of trucks and into stores, he said.
Lidl also spends less money on in-store merchandising because they do not stock as many national brands. Rather than having elaborate cardboard cutouts or stacked pyramids, they can stick to simple displays and use so-called "dump bins," and baskets to present products.
7. It cuts costs on things like lighting
Overall efficiency is key at Lidl and it constantly cuts costs along the way.
They avoid spending money on all the "bells and whistles of a store," Koontz told Business Insider.
“We look at waste differently,” a spokesperson for Lidl told the Washington Post. “It’s not just what ends up in the garbage can at the end of the day, but also about any inefficiency along the way that ends up costing the customer more.”
According to the Washington Post, one way of doing so is making stores make good use of natural light whenever it can.
8. It doesn't spend a ton on ads
Lidl sticks to local, smaller-scale marketing.
“They have been very active locally on local radio advertisements and local social media," Koontz told Business Insider.
A recent price check on a basket of 20 items by Jefferies analysts found that Lidl was about 9% cheaper than Walmart. Read Full Story
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