When Germany’s popular discount grocer Lidl broke into the U.S. market with its first stores last year, it had some pretty ambitious expectations, building massive glass stores and a goal to open 100 locations in its first year. In its first few months, Lidl did manage to disrupt the grocery market in cities it opened its first stores in by driving competitors to make drastic price cuts of their own, but being the new guy in town has come with challenges the company wasn’t quite ready to face.
Germany’s Handelsblatt reported on Lidl’s apparent struggle on Thursday, noting that the company has had to learn some painful lessons about the American retail market and strategies that have proven successful in other parts of the world just aren’t producing the same results.
“management underestimated the challenge in the US”
Michael Rogosa, a global research director at Retailnet Group, told Handelsblatt that it appears Lidl failed to understand the diversity of the US grocery industry and set unachievable expectations. “Lidl’s management underestimated the challenge in the US.”
While Lidl provided some pretty steep cuts to grocery staples in their stores, area competitors weren’t going to just wait and see if the shiny new store in town would become a success. They too cut their prices, many by half, and as a result kept their loyal customers from switching stores. Associate professor of marketing at the University of North Carolina Kenan-Flagler Business School, Katrin Gielens, told Handelsblatt that the “price-cutting effect of Lidl’s entry in a market is more than three times stronger than the effect of Walmart’s entry.”
In a statement given to Handelsblatt before the articles publication, a Lidl spokesperson wouldn’t admit that their expansion efforts were being slowed, but did admit that the company’s efforts “need adjustment at one point or another”. Some of those adjustments appear to be scaling back the size of new stores from 35,500 square feet to 15,000 and focusing on placing locations in areas with a higher population density.