Lidl continues to grow strongly internationally, thanks to store openings and the roll-out of new services. Profit is also increasing. However, the discounter does not yet seem ready for further steps in e-commerce.
Growth in UK and France
Lidl’s international operations – which account for about 65 % of the company’s sales – grew by 9.5 % in the 2020-2021 fiscal year, to 62.3 billion euros. With this, the retailer is doing better than most of its competitors. Noteworthy is the fact that the discounter achieved especially strong growth in some mature and highly competitive markets: in the UK, for example, sales increased by 12 %, in France the growth was 14 %.
The fact that investments (capex) fell by 10 % in the same period suggests that the retailer’s sales growth is largely due to market share gains in several countries. This is the conclusion of Barclays analysts, who had the opportunity to review the operating results of Lidl International. Lidl continued to open new stores and modernise existing outlets, but did not enter new countries during the year under review. The chain did decide to open in Latvia in October 2021. Estonia, Bosnia and Herzegovina and Montenegro are planned for this year.
High margins
The pandemic ultimately only had a limited impact on the cost structure of Lidl’s international division. Personnel costs rose slightly, but other operational costs fell. As a result, EBIT rose 24.5 %, the margin improved 50 basis points to 4.5 % and net profit rose 24 % to 2 billion euros, the highest level since 2012. This is particularly strong: only Ahold Delhaize is doing better, with a margin of 4.8 % in 2020.
In order to continue its strong performance in the coming years, Lidl wants to continue to focus on physical expansion, but the retailer also – for the first time – indicates that it cherishes online ambitions. This is illustrated, among other things, by the recruitment of several experienced digital managers from Amazon and coffee chain Tchibo. For a low-price player, however, e-commerce is not an obvious choice because of the cost structure, Barclays points out.
Digital services
Despite a test with click & collect in Poland and a collaboration with delivery app Buymie in the UK, analysts see no evidence that Lidl is to develop new e-commerce activities in the short term. Instead, they expect the retailer to continue to gain market share through an ambitious store opening programme and the roll-out of new services such as the digital loyalty programme Lidl Plus, which is being launched in more and more countries. The discounter is also working on the mobile payment solution Lidl Pay.
Will Lidl’s growth have an impact on the competitive position of other retailers? In the US, the discounter – with yet another new CEO – wants to double its store network, but so far this expansion has had no noticeable impact on Ahold Delhaize, which is partly active in the same regions. According to the analysts, Lidl’s decision to lower its prices in Flanders, especially in response to the expansion of Albert Heijn and Jumbo, further increases the pressure on Colruyt.
(Source: Barclays)
