Lidl: private label developments and the branded opportunity

Maxime Delacour
Senior Retail Analyst
@RetailAnalysis

Date : 14 September 2020

We looked at Lidl’s latest developments for its private label food products, as well as the potential opportunities for brands at the discounter.

Italiamo private label brand is getting stronger

Lidl’s Italian delicatessen private label Italiamo is emerging as one of the discounter’s strongest and most well-known brands. When launched, the number of Italiamo products was limited, and they were usually listed for a limited time during Italian-themed promotional weeks. The assortment, though, is now permanently available in all 29 countries where Lidl operates and includes a wide number of products across ambient, chilled, and frozen categories.

Over the last 12 months Lidl has promoted its successful private labels even more in-store, with dedicated shelves in ambient and chilled areas. A growing number of stores across Europe are now displaying the Italiamo range on branded fixtures, highlighting the wide selection and contributing to raise awareness of the brand further.

This is an interesting case study of how a private label can evolve to branded status and compete directly with major brands. Leading brand suppliers should not underestimate the potential growth for premium private label products and the disruptive role they could play in the medium term. This has been heightened by the COVID-19 pandemic, which has encouraged shoppers to switch from major brands to smaller, local names and private labels in many European countries.  

Source: IGD Research

 

Lidl Spain expands its premium cheese assortment

On 10 September Lidl officially launched dedicated fixtures for premium cheeses, under the name La Quesería de Lidl (Lidl’s cheese shop). The concept was introduced in several stores in May 2020, when the discounter saw sales of its premium cheese grow by more than 50%. Lidl is already the second largest retailer for premium cheese in the country with a market share of 7.7% (according to Kantar Worldpanel). The new section will contribute to creating a strong differentiation point with market leader Mercadona.

The assortment includes around 20 private label products, half of which are Spanish cheese, with the rest sourced internationally. According to Lidl, seven of the cheeses cannot be found at any other retailer in Spain, adding some exclusivity. The cheeses are displayed in baskets, next to the wider cheese assortment, which adds to its more premium look and feel, while also creating a dedicated space that helps draw attention to the products too. The displays and fixtures are already being implemented in several markets, including France, showing Lidl believes there is more demand for it stock more premium products across Europe.

Source: Lidl Spain

 

The main barriers to purchase premium cheeses are the price and the weight of the prepacked products potentially generating some waste, according to Lidl. To limit these shopper challenges, it has created a tasting format with a weight of around 100g and at a price point between €0.99 to €2.39.

Opportunities for national brands…

Due to its high share of private label products and usually low margins the discount channel is often disregarded by brand suppliers. Despite this it is a major contributor of sales growth to the grocery industry. Over the last five years it accounted for more than half of the sales growth seen in Europe (excluding Russia). We expect the channel to grow ahead of the market from 2021 onwards, benefiting from the current economic outlook, while also attracting new shoppers and more sales by adapting and evolving its model. This will see operators trial ecommerce solutions and trial solutions that cater for more shopper needs.

…With Lidl providing recent examples

Lidl continues to mainly focus on its private label products, but because it is growing its range there are also more opportunities for brands. Some recent examples include Heineken and Oatly.

In May 2020, Lidl Netherlands permanently listed several Heineken products. This was an important move for the discounter as it has very few brands in the category in the Netherlands, unlike in other markets. More recently in September, Lidl Sweden announced it will expand the number of permanently listed Oatly products it carries, adding seven SKUs.

Both these brands share the same characteristics in the countries where they have been listed: they are local and enjoy a very strong awareness with shoppers. It shows Lidl’s strategy to bring in more national brands that will help drive footfall, but also add differentiation to its private label products. There is no information about the potential expansion of the brands to other markets but Lidl tends to operate a strategy of test, learn and expand. A good relationship with Lidl operations local to your business is an important starting point to trade with the discounter before potentially discussing any wider expansion.

Our view…

These recent developments show the discounter continues to add more “premium” products and brands to its assortment. Whilst it could be a challenge for branded suppliers to enter and expand with discounters, the channel should not be discounted as there are opportunities. More importantly, it is expected to be the fastest contributor of growth to physical grocery retail in the coming years and will remain ahead of online in terms of total sales volumes.

Looking for more insight?

Retail Analysis subscribers looking for more insight on Lidl can read our Lidl Strategic Outlook for 2020