Revealed: how budget supermarket Lidl is taking over the world

The second largest German grocery chain, Lidl is set to open 100 stores in the US by the end of 2017 and promising to undercut retail giant Walmart by up to 50%. But where did the supermarket come from and what’s the story behind its success? We reveal all…

The second largest German grocery chain, Lidl is set to open 100 stores in the US by the end of 2017 and promising to undercut retail giant Walmart by up to 50%. But where did the supermarket come from and what’s the story behind its success?

The Lidl story began in 1930 when a man called Josef Schwarz became a partner in Südfrüchte Großhandel Lidl & Co – a neighbourhood fruit wholesaler, which he soon developed into a general food wholesaler.

Unfortunately, as a result of World War II, in 1944 the company fell apart and a decade-long reconstruction period began.

Josef’s son, Dieter Schwartz (pictured), who founded Schwartz Group, a retailer specializing in discounted supermarkets and wholesale markets, started work on rebuilding Lidl again.

Introducing Lidl

Led by Dieter, Schwartz Group finally formed Lidl Stiftung & Co. KG, a discount retailer based in Neckarsulm, Germany. Dieter decided not to call the firm Schwartz-Markt, because it translates as ‘black market’. Instead, according to the Guardian newspaper, he eventually bought the naming rights from the store's co-owner Ludwig Lidl, by now a retired schoolteacher, for 1000 marks (roughly $574/£442 in today’s money).

After successfully founding the firm as Lidl Stiftung and Co. KG, the first store was finally opened in 1973 in Ludwigshafen, Germany (pictured). Just three people were employed to run the store, which sold 500 product lines.

A household name

By the 1980s, the supermarket was a household name in Germany, operating what it claims was a “simple vision that inspires us all: high quality at low prices”.

The no-frills approach to shopping, Lidl’s business model was based on that of its competitor Aldi. All products were, and still are, sold in their original packaging. Customers simply take products from the packaging and staff refill them when they’re empty, rather than constantly re-stocking shelves.

Because of such a simple model requiring minimal labour, staffing is kept to a minimum to save on cost, which subsequently allows for cheaper produce in-store.

Compared to other supermarket chains, Lidl started with a much smaller range of products and fewer branded lines. Even now, the store now has 1,500 to 1,600 lines but just 330 branded lines, compared with the 15,000 usually found in larger supermarkets.

Breaking Europe

The German supermarket giant soon expanded to the rest of Europe. By the mid-90s, stores were popping up all over the continent.

In 2015, Lidl announced its plans to expand to America, Russia and Australia, with the aim of having 20 supermarkets in the Russian Federation by 2020.

In the same year, Lidl moved into the top five of the world’s largest retailers. The company has over 10,000 stores across Europe and over 230,000 employees.

Unlike the rest of Europe, the UK started focusing on slightly different areas to the head office. Lidl UK decided to invest more in marketing and public relations, as well as providing employees with benefits that weren’t required by law.

Pressure on profits

The new approach was led by former Lidl UK managing director Ronny Gottschlich (pictured). However, the increased spend on marketing hit company profits, which subsequently caused friction between Lidl UK and the head office in Germany.

Following this, in September 2016, Gottschlich unexpectedly left the firm. He was replaced by Austrian sales director Christian Härtnagel (pictured).

But the downturn in the UK didn’t ever affect the company’s worth. As of 2016, Lidl has been raking in global sales of around $85.7 billion (£66bn).

Many people started switching to discount stores like Lidl during the economic downturn in Europe in the late 2000s, which saw its popularity soar as people sought cheaper produce. But once the economy improved, the happy shoppers didn’t ever turn back.

Part of Lidl’s appeal is its huge range of non-branded products, which have been found to taste as good as or better than, the branded, more expensive products in bigger supermarkets.

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Reaching out

Now, one in three Lidl shoppers in the UK is from a wealthy background, according to research by him! published in The Grocer magazine.

The proportion of wealthier shoppers rose dramatically after the store started introducing more premium products to its range such as: award-winning wines; fresh foods such as lobster, steak and smoked salmon; and other delicacies considered to be favourites among wealthier shoppers.

But the luxury goods still come with a discounted price. Lidl UK has been known to sell a whole Serrano ham joint for just $52 (£39.99), $4 (£3) caviar and $13 (£9.99) champagne.

Criticism

However, it’s not always been plain sailing for the German discount giant. Trade unions in Germany have repeatedly criticized the firm for breaching workers’ rights.

According to the UK’s Guardian newspaper, staff were being 'snooped on' by Lidl in the mid-2000s. The paper reported that an investigation by German news magazine Stern found there was an "extensive espionage system" in Lidl shops around Germany that were installed to record "how many times they went to the toilet, details about their love loves and personal finances". However, the chain claimed the official reason for the cameras was simply to "reduce shoplifting", the Guardian reported.

Despite this, Lidl, alongside fellow German competitor Aldi, is now one of the leaders in the supermarket world, threatening some of the world’s biggest chains, such as UK stores Tesco and Sainsbury’s, and is now taking on the Waltons’ retail giant, Walmart. The Schwarz Group is now Europe's biggest grocery retailer, according to Deloitte.

Putting up a fight

But unlike the rest of Europe, French retailers have been successfully fighting back against Lidl, and it is the only country where discounters such as Lidl have seen a significant drop in market share.

In 2008, French retailers managed to fight back after a law change, which allowed them to freely negotiate prices with suppliers, meaning they could introduce big, competitive price cuts.

But this hasn’t affected the Schwartz family. Schwartz Group now has an annual revenue exceeding $90 billion (£69bn), according to Forbes. The Group is comprised of Lidl and Kaufland, a German hypermarket chain which combines a supermarket and a department store

Dieter Schwartz regularly appeared on Forbes’ billionaire list, but was removed after claiming he had transferred his ownership of Lidl to a charitable foundation – the Dieter Schwartz Foundation (team pictured), which supports education and childcare facilities.

A charitable purpose

But in 2013, he re-appeared in the list after it was revealed the foundation is a limited liability company with a charity purpose, rather than a foundation.

In June 2017, ahead of schedule, Lidl will open its first 20 stores on the east coast and a further 80 will be opened by the end of the year. It has already taken on 1,400 staff in the US and is promising to undercut Walmart by up to 50%.

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