Lidl owner Schwarz Group has announced 7% growth in net sales to €79.3bn (£57bn), an increase of more than €5bn (£3.6bn) in absolute figures.
Lidl has achieved its recent strong performance with a presence only in its home region of Europe, and now it is time for ‘Adventure America’.
The group is already the largest retailer in Europe. Now it is also larger than Tesco and Carrefour (excluding franchised operations) on a global level. With a presence in 26 markets (29 by 2018), any international deals made with Lidl carry immense clout. That also means any modifications Schwarz Group implements – e.g. product quality - will affect the entire discount channel.
Both Carrefour and Tesco saw a negative sales trend during the last fiscal year, but both also increased their consolidated store network by 7.5%. In contrast, Schwarz Group increased its store base by 1% (to 11,115 outlets).
The German retailer’s growth does not come from flag-planting, but is related to measures enacted in existing stores. Of the €5bn (£3.6bn) Schwarz Group invested in the last year, €3.5bn (£2.5bn) went into network revamp. In all 26 markets in which Lidl is present, its focus is on growth initiatives spurred by an enhanced assortment and offer. The retailer’s average store size has increased over the years, allowing for the possibility to extend some in-store sections and to expand aisle sizes.
Limit to be reached
Schwarz Group has achieved its sales increase with a presence only in its home region of Europe - which is quite a strong pillar. If the focus in Europe concentrated mainly on increasing sales organically, the retailer will surely reach a limit to what can be achieved at some point.
One solution is expansion into new regions. In Europe, Schwarz Group intends to enter Lithuania this year and Serbia in 2018. It also plans to take Lidl to markets beyond Europe for the first time. The US is on the agenda for 2018 - which will be a very courageous step for the company. It will necessitate new supplier structures that will have to be created from scratch. Chief executive Klaus Gehrig said it requires “high attentiveness”, and called the plan “Adventure America”.
It seems likely that Schwarz is waiting to see further growth potential in other markets and that, should suitable opportunities arise, it will manage to steal market share from the world’s biggest retailers when entering new, attractive markets.
- Denise Klug, retail analyst, Planet Retail