Lidl US unveils strong expansion plans

Date : 26 August 2020

Maxime Delacour

Senior Retail Analyst

Lidl US plans to open 50 new stores by the end of 2021, investing more than US$500m and creating 2,000 new jobs. The retailer’s pace of store expansion could continue in the medium to long term.

Ramping up its network expansion

Following a slow start, after entering the US in 2017, Lidl is now accelerating the pace of its expansion. In 2019 its turnover reached more than US$1bn, growing year-on-year by 69%. It topped the National Retail Federation Hot 100 Retailers’ list of fastest growing companies.

The ambitious expansion plan will enable the discounter to reach the 150 stores mark by the end of 2021. Most new stores will open on Long Island, NY and in the Baltimore and Washington areas, where it opened its third distribution centre in March 2020.

At the same time, two stores will close as part of the discounter’s strategy to focus on profitable locations. Employees will be given the opportunity to work at other nearby stores.

Source: Lidl US

 

The list of the 50 new locations is available on the Lidl US website.

Pace of expansion expected to accelerate in 2022 and onwards

The three distribution centers are currently operating far from capacity and so can support more store openings in 2022. Lidl also plans to open a fourth distribution centre in Covington, Georgia (Atlanta area) in the next two years. This will enable it to open further new stores in this area, where it currently operates several, including its most recent, which opened on 26 August in Dunwoody.

Although Lidl could still be considered a small retailer, compared to the likes of Walmart, Target or Aldi, its expansion plans and the current economic outlook should contribute to strengthen its growth. This will see it increase its disrupting role in the US market, especially on prices.

COVID-19’s impact on the economy is expected to bring back savvy shopping behaviour. Lidl, like other discounters, could benefit from the situation thanks to its focus on low prices and value. To remain relevant, Lidl US is constantly evolving its assortment to cater to more shopping missions, including the main shop.

In 2019, it implemented a new strategy for its stores, enhancing the shopping experience and tailoring the assortment to cover more needs, such as organic and free-from foods. This seems to have proven successful as the number of openings has since accelerated with the new plan to open 50 new stores indicating the discounter is going in the right direction.

Source: IGD Research

 

Could an omnichannel strategy be the next step?

Unlike major retailers, discounters globally have not benefited from the strong growth of online sales seen during the pandemic due to their limited ecommerce operations. Aldi and Lidl were already increasing their investments in digital and ecommerce solutions, but the COVID-19 pandemic has accelerated many of these initiatives.  

The US is one of the few markets where Lidl offers an ecommerce solution, home delivery in partnership with Boxed and Shipt. The service is currently available at selected stores only. The main challenge for Lidl in the US and globally is to make sure it can find an efficient and profitable ecommerce model, as it has with its physical stores.

In addition to third party in-store picking, a curbside service could be an addition for Lidl US. It is already available at Aldi US and is currently being tested by Lidl in Poland. This could be a more sustainable and profitable model for the discounter, as there are no last mile costs.

Finally, a solution that could fit with Lidl US and other discounters’ models, is the addition of a micro fulfillment centre (MFC). For existing stores, it could mean building an extension, as there will not be enough space in many existing sites, but this is still a cheaper solution than building a dark store. Stores’ locations close to shoppers also means lower transports costs. More interestingly the MFC model fits well with discounters’ limited assortment and enable a fast picking rate, thus limiting labour costs.

Source: Lidl US

 

Beyond trying to identify what online solutions discounters will invest in, it is important to bear in mind that major discounters, especially Aldi and Lidl, are exploring solutions in this area and will evolve in the short to medium term. Omnichannel is increasingly becoming the way forward for grocery retail and discounters are expected to follow a similar path, but one that is subtly differently, as they’ve done with their physical stores.

Looking for more insight?

Retail Analysis subscribers looking for more insights on Lidl and the discount channel can access the following reports: