Lidl’s ‘smarter shopping’ promotion is a step towards the mainstream supermarkets it has strived to differentiate itself from.
Lidl’s introduction of a ‘smarter shopping’ card in Scotland is the latest intriguing development in the supermarket price war.
The discounter has insisted that its 10-week scheme - which will offer customers in Scotland a range of savings starting with £5 off when they spend £25 in-store - is not a loyalty scheme. No data is collected on consumers and they do not have to accrue points in order to benefit from the rewards.
To all intents and purposes then, Lidl has moved into vouchering – albeit in a glorified manner behind the guise of a card.
Asda boss Andy Clarke, who has made no secret of his emphatic decision to avoid vouchering, described similar tactics as “short-term traffic-driving initiatives” that provided “the vanity of a top-line number without the sanity across the rest of the profit and loss”. Those strong words came after Clarke previously labelled the practice of vouchering “a knee-jerk reaction”.
If that is indeed the case, it raises the question: What exactly is Lidl reacting to?
Big four fightback
When Asda’s big four rivals have invested heavily in price and promotion, they have done so in the face of stiff competition from the discounters. Tesco, Sainsbury’s and Morrisons have seen it as a relatively simple way of driving sales and wooing customers back from their German counterparts.
On the face of it, the fact that Lidl has now resorted to similar tactics in Scotland suggests the discounter is strengthening its defence against a big four fightback, which is already gaining a degree of momentum.
Mainstream grocers had been slow to adjust to the growth of the discounters, but in recent years they have slashed prices and adapted to accept smaller margins. The market leaders have invested in excess of £1bn in price over the past two years, which has seen the price differential to Aldi and Lidl narrow dramatically and the German duo’s growth is slowing.
Today’s Kantar Worldpanel figures revealed that Aldi and Lidl are still growing sales at market-smashing rates of 18% and 12.8% respectively. But those figures pale in comparison to a year ago, when Aldi enjoyed 29.5% sales growth in the 12 weeks to August 17, while Lidl’s rose 18.3%.
That trend shows no sign of slowing and, while the discounters may be judged on different KPIs because they are private companies, bosses at both retailers will want to stem the tide when it comes to the gradual decline in sales growth. Vouchering has been the driver behind similar sales goals at bigger grocers and there is no reason why it wouldn’t have similar effects at Lidl.
Is Lidl on to a loser?
Should it decide to transport its current 10-week promotion south of the border into England, customers could be the big winners from more “knee-jerk reactions”, as the bigger players respond with similar promotions to protect their own sales figures.
But if the consumer looks poised to be the winner, could Lidl actually emerge as the loser from the implementation of any wider vouchering activity?
For years the discounters have achieved unprecedented success by offering an alternative to grocery’s established players, largely by concentrating on price and steering clear of short-term promotions to drive footfall. The introduction of vouchering would be seen by many as a fundamental shift and a first step towards becoming more like the mainstream supermarkets from which it has strived for so long to differentiate itself.
While any expansion of its ‘smarter shopping’ card would surely build on a “phenomenal” early uptake and drive sales in the immediate future, boss Ronny Gottschlich and co will have to carefully consider how that could potentially play into the hands of Aldi in the longer term.