As Lidl Breaks All Records,
Critics Lack Historical Knowledge:
The Private Ownership Difference
Jim Prevor’s Perishable Pundit, October 17, 2017
Fake news is an important problem and one amplified by social media. When people see articles that reconfirm their own biases and then these people send the article out under their name to their social media connections, often nobody has done the due diligence necessary to ascertain if the story is accurate.
But truly fake stories — things that just never happened — eventually get uncovered if they gain traction. A more dangerous issue is that few publications have the resources to hire reporters who are truly expert in the fields they are assigned.
We get quoted a lot in the consumer press. And 20 years ago, we often got called by ag reporters or retail reporters who were full time dedicated to the task for decades. Nowadays, it usually is the real estate reporter, whose editor assigns this story because there is a food safety crisis. So, someone with zero experience and knowledge somehow has five hours to not only understand the story but then figure out how to make others understand it as well.
We spend countless hours helping. Indeed it was partly out of this experience that we launched programs for “consumer influencers” at the New York, London and Amsterdam Produce Shows — so we could help educate both housewife bloggers and professional reporters, all of whom really could benefit from gaining more subject knowledge about produce and the venues where consumers shop for produce.
Even the Wall Street Journal — as great a newspaper as exists in the United States — has this problem. The paper recently ran an article titled Lidl Stores Gain Little Traction So Far in the U.S., written by its grocery reporter, an obviously bright woman, but one who was as recently as last year, “on the 2016 campaign trail barnstorming the Republican field, along with covering politics and policy in New Jersey and the Northeast.”
We respect the Wall Street Journal; we have written for the Op-Ed page of the Wall Street Journal and we have been quoted many times. But the reporter covering grocery for the nation’s preeminent business publication should have 20-years of experience covering the industry, otherwise they won’t even know the questions to ask.
We saw this all over the media in their coverage of the price-cuts announced by Whole Foods after Amazon.com made the purchase. Hundreds of outlets reported these price-cuts as if they were meaningful — yet virtually nobody thought to ask the only relevant question: Had Amazon, in fact, decreed that it would accept lower margins overall or was this just a gimmick of lowering prices on some items and raising them on others? We discussed the issue in a piece titled Amazon/Whole Foods Uses Tricks Of The Trade And Easy Media Manipulation To Dampen ‘Whole Paycheck’ Reputation.
Here is what the Wall Street Journal’s article that purported to see Lidl in trouble in America actually said:
In June, Lidl was drawing 11% of consumer visits to traditional grocers in nine markets in Virginia, North Carolina and South Carolina, according to data that inMarket shared with The Wall Street Journal. By August, Lidl’s share of that traffic fell below 8%...
Lidl’s share of grocery visits declined in that period even as it was opening more stores in those states. Lidl has opened 37 stores in five states and plans to operate as many as 100 in total, from New Jersey to Georgia, by next summer
When more-diversified food sellers such as Wal-Mart and Target Corp. are included, inMarket says Lidl’s share of shopping trips in those states peaked at nearly 3% in June before falling in July and August. Lidl recovered some traffic in September, reaching 2% of the market.
First of all, drawing 11% of consumer visits by a new entrant in a substantial space such as nine markets, with a banner name unheard of in America, is nothing short of spectacular. It is, literally, unheard of. Nobody has ever done it before. It is an extraordinary accomplishment.
A decline to 8% in this context is something extraordinary because, again, nobody has ever succeeded like this before.
Aside from the article lacking any historical perspective on this issue, there is not much evidence of the most rudimentary knowledge about supermarket openings.
In almost every case, stores open big — they get media attention, there is grand opening celebrations, charity tie-ins, special prices, coupons, merchandising help from vendors — then, in almost every case, sales decline, often substantially as the grand opening fades into memory.
If a store is successful, it stabilizes at a post-grand-opening level — often, say, 70% of the initial — sales and then, as the store matures over three to five years, sales will gradually increase.
Steve Burd at Safeway had set up a system where divisions could earn future investment dollars based on how well their new stores performed — defined not as failing to maintain their grand opening sales but as maintaining the lower, post grand-opening sales level.
In any case, the rest of the article confuses anecdote with data. One guy stood in a parking lot and in “one 15-minute period” only saw two shoppers enter one store. Another anecdote, without any information as to the actual sales of any items, criticizes Lidl’s selection for being too organic or selling items too “European,” like cycling shoes and badminton sets and emphasizing wine when, in fact, they think the community wants beer.
Of course, none of this means anything — and, in any case, the shocking thing would be if every location was a winner, and if every item selected for promotion was a home run.
What is really the great reason for thinking Lidl will succeed — aside from it being a concept that is already a success in 10,000 stores all over Europe? The real secret weapon of Lidl is owner commitment.
We wrote extensively about Fresh & Easy when Tesco tried to open in America. There were loads of mistakes and many unforced errors, but, in the end, Tesco failed in America because Tesco gave up. This is to no small extent because Tesco was a publicly held company, and the quarterly demands from the City in London and Wall Street in New York City just didn’t allow for the long-term perspective that would have been required to change Fresh & Easy so it would be successful. Or, at least, Tesco had set these expectations ridiculously high and could never reset them.
Lidl is very different… we are reminded of a piece we wrote in the Pundit in which quoted the late Frank McCarthy, who was then with Albert’s Organics. Frank’s insight is still very valuable:
This reminds me of a conversation I had with Ernest Gallo in another career about twenty years ago. He wanted to upscale the image of his wines. I explained to him that he’d spent a half-billion dollars over a 40-year period positioning Gallo as good cheap wine. (Remember Gallo Hearty Burgundy?) I told him it would take a generation and a billion dollars to accomplish this task. He said, “I better get started right away.” Family companies have options that public companies don’t.
Lidl will succeed in America because the Schwarz family, who owns the company, will not give up. They will change and transform Lidl until they get it right. Articles by reporters who don’t know to explore the implications of different ownership structures will not impact this outcome.