Aldi and Lidl have a new weapon in their battle to be Germany’s discount grocery number one: Coca-Cola.
Both chains have for years used own-brand goods and low prices to woo customers from global giants like Carrefour, Tesco and Metro. Both are still expanding abroad – particularly in Britain and the US.
At home, though, they have hit saturation point. There are now six times as many Aldi or Lidl stores per person in Germany as there are Wal-Marts per person in the US. That’s one reason Aldi decided in October 2012 to stock Coca-Cola, to add to a limited range of other big name brands it has introduced in recent years such as Nivea and Nutella.
Aldi is the world’s biggest discount store operator by sales, and had flourished for more than 40 years without stocking major brands. Lidl, on the other hand, has offered a slightly more varied range of products including Pepsi-Cola, which it bottles in Germany, and Coca-Cola. Gradually, it had been winning market share.
Aldi’s radical move with Coke did lift its market share, though Lidl’s also rose in 2013. The biggest benefit for Aldi was that it wrong-footed its rival. Lidl’s initial response was confused, the company lost executives, and it recently postponed a planned international expansion.
Longer term, though, will abandoning the philosophy that made Aldi successful backfire?
Dieter Brandes, a former managing director at Aldi, worries that a new generation of managers may be steering the firm in the wrong direction.
“Today they are increasingly approaching the management methods and behaviour of the big supermarkets and hypermarkets,” said Brandes, a longtime confidant of Aldi’s late co-founder Theodor Albrecht.
Spokeswomen for Aldi’s two main divisions said the firm’s focus remains on developing its own brands and only listing a very limited selection of name brands.
“We make these exceptions for proven brand products with which customers have an almost emotional relationship,” said Serra Esatoglu, spokeswoman for Aldi Nord.
For most of that time Aldi has led the way. “There really is an Aldi way of doing absolutely everything. It is efficiency based. Everything is very carefully calculated,” Paul Foley, managing director of Aldi UK from 2000-2009, said.
The goal was simplicity. “Anything that adds complexity, difficulty and would eventually require a more complex process to manage is looked at 100 times before accepting it,” said Foley, now a consultant based in Austria. “In most cases it is turned down.”
Lidl’s twist on Aldi’s model was to use selected brand promotions. It also has a broader range of fresh produce, and pays more attention to lighting and product presentation than at minimalist Aldi.
Lidl has grown its market share in Germany to 6.5 per cent from 5.5 per cent in 2008, according to data from business intelligence firm Planet Retail. Aldi’s market share has slipped to 8.8 per cent from 9.1 per cent over the same period.
Planet Retail forecasts that the Schwarz group that owns Lidl will overtake Aldi as the world’s biggest discount store operator by 2018, growing at a compound annual rate of 6.1 per cent from 2013 to 2018, against 4.5 per cent for Aldi.
However both chains have struggled recently in Germany, where the grocery market has stagnated. German shoppers, who in 2008 spent 45 per cent of their grocery money at Aldi, Lidl and other discount chains such as Netto and Penny, are shifting to mainstream supermarkets as the economy picks up. The market share of the discounters slipped to 43.4 per cent in the first five months of 2014, according to research firm GfK.
To compete, both Aldi and Lidl have become increasingly complex. They have introduced more premium product and brands, spruced up stores by adding things like bakeries, and spent more on marketing. Aldi’s stores now stock around 1,000 basic goods in Germany plus several thousand non-food items like children’s clothes, plants and household appliances. Lidl has 1,600 items in its standard range.
Aldi’s Coke move shows where complexity can lead. When Aldi began stocking the soda, Lidl responded with special offers on Coke.
Late last year, Aldi hit back, slashing the price of a 1.25 litre bottle of the drink to just 89 cents.
Coca-Cola then demanded an industry-wide price rise, according to Mike Dawson, who has been writing about the German retail industry for 30 years for trade journal Lebensmittel Zeitung.
Lidl pulled Coke from its shelves, instead pushing its own-label cola and listing more Pepsi brands like Mirinda orange drink, according to Dawson. But just six weeks later, the smaller chain reversed course and restocked Coca-Cola. Within weeks, Dawid Jaschok, Lidl’s main negotiator with its suppliers, and Lidl CEO Karl-Heinz Holland were out of a job.
Lidl said in a statement the dismissals were due to “unbridgeable differences” over strategy.