Editor’s note: Jekaterina Smirnova is a research analyst at t the Vilnius, Lithuania office of market research firm Euromonitor International. This is an edited version of a post that originally appeared here under the title, “Should Lithuanian grocery retailers wait in trepidation of Lidl’s entrance?”
One of the most important and anticipated events in grocery retail in Lithuania is the opening of German global discount supermarket chain, Lidl, in the local market. Some expect that Lidl will change the grocery retailing landscape in Lithuania completely, with its entry the subject of much discussion in Lithuania. Is Lidl really such a threat to the leading grocery retailers in Lithuania? The company has been registered in Lithuania since 2002 and, for more than 10 years, there have repeatedly been press stories popping up about Lidl’s plans to enter the fray in Lithuanian grocery retailing. However, it was only in 2015, with the start of construction work on Lidl stores that it became evident that the grand opening was just around the corner. The first of 15 stores opened on June 2, 2016. Even though Lidl is a new brand in Lithuania, it is well known and eagerly anticipated by consumers.
The only discounter in the local market
On the one hand, the Lidl concept of focusing on lower prices is appealing to Lithuanian consumers, especially when considering the increasing levels of shopping in Poland and consumers boycotting leading grocery retailers for several days in May due to high prices. Thus far, the discounter concept has not been successful in Lithuania – so it will be entirely up to Lidl to spearhead the concept of discounters in the local market and to build positive quality associations in Lithuania. Those discounters that had tried to expand into Lithuania at some point in the past, for example Supernetto and Cento, eventually withdrew again as price – an important factor influencing consumer behavior – is not the only major consideration for consumers.
In 2015, Lithuania was among the few European countries with no discounters at all. Quality, service and assortment also play a huge role, meaning that consumers, rather than just picking a low-cost store, prefer to visit a retailer with an extensive selection of products and that quite often offers known and respected brands at a discount. Discounts play a very important role in influencing customer choice, and Lithuanians tend to look for the best deal instead of being loyal to one chain. All leading retailers in Lithuania have their own loyalty cards, which allow members to benefit from special discounts or collect bonuses. In total, there were more than four million active loyalty cards for the leading grocery retailers in 2016. To date, Lidl has only run trial loyalty schemes in Scotland but it might have to consider doing so in Lithuania as well.
Another factor that might limit the Lidl performance is that only around 20 percent of products sold in Lidl stores will be Lithuanian, which is low, bearing in mind that Lithuanians are relatively loyal toward local food, which is perceived as being of higher quality and more natural. On the other hand, consumers in Lithuania are becoming more open to private label products, which is an important factor for a retailer that sells a majority of private label goods. Furthermore, in its assortment, Lidl has different lines of private label products, including ones targeted at those consumers who are not driven by price alone.
Consolidated competitive landscape
Lidl is entering an oligopolistic market, which could be described as very competitive. In value terms, 71 percent of grocery retail in Lithuania was owned by four retailers in 2015 – Maxima LT, Palink, Norfos Mazmena and Rimi Lietuva. Maxima is the clear leader with a 36 percent value share. The biggest chains in Lithuania operate close to 700 stores, have well-established brands and compete by investing in marketing and price cuts. The leading companies will definitely not be willing to give up current market share and will take action to withstand the competition from the newcomer. Back in 2015, when it became clear that Lidl was planning to enter the local market, increasing activity was observed among the leading grocery retailers, as they actively promoted falling prices for the most popular products. Maxima, for example, launched personalized discounts for its loyalty card users. Furthermore, the leaders continued their expansion by opening new stores. In 2016, retailers actively started to launch buy-one-get-one-free-type special offers. Through marketing and expansion, leading grocery retailers are working to continue to attract consumers as well as to maintain existing customers’ interest in their stores.
According to its initial plans, Lidl wants to expand to reach 25-30 outlets, which will only account for a share of around 1 percent of modern grocery retailers (excluding forecourt retailers) in terms of outlets. Moreover, based on value sales, Lidl does not hold a leading position or have a value share of more than 11 percent in any European country. In Eastern Europe (excluding countries where Lidl is not present), Lidl held a 6 percent value share of total grocery retail in 2015, with its share growing year-on-year. With 25-30 outlets in Lithuania, Lidl could hold a 3 to 4 percent value share of grocery retail.
Lidl development in Eastern Europe
It looks like Lidl has thoroughly prepared and will show a lot of fighting spirit. To date, only in Norway has Lidl left the market after an unsuccessful entry – in other countries its number of outlets varies from more than 3,000 in Germany to around 50 in Slovenia. Despite not yet having opened its stores in Lithuania, the chain has already been trying to build a strong image as an employer. Furthermore, marketing campaigns featuring one of the most famous Lithuanians, basketball player Arvydas Sabonis, have already started to prepare customers for the grand opening. Due to this media coverage, consumers are already aware of and interested in visiting the new store. Whether they remain loyal to it will depend on Lidl’s adaptation to local specifics and the perceived value.