For decades, Lidl and Aldi have been dominant players in the German supermarket business, thanks to low prices, in-house brands and frugal presentation. No fuss, no nonsense… and no online business. Last year, it even seemed like Lidl was giving up the internet altogether. The discounter pulled the plug on online food ordering before the service even launched. Then its e-commerce boss abruptly left the company.
Although both Lidl and Aldi are now making online forays in Germany, they are taking far more risks and doing a better job of keeping up with their rapidly changing markets abroad. The foreign experience may not help them at home and they are in danger of losing customers clamoring to shop and receive their groceries at home.
Still, Lidl is making a concerted effort to change, increasing its non-food sales on the internet. “We grew 50 percent last year and want to continue doing that,” says Thorsten Reichle, its new digital boss. The aim is online revenues over €1 billion ($1.2 billion) this year. But that’s a drop in the bucket compared to overall group sales of €68 billion.
Rival Aldi’s digital presence is even worse: in Germany, the company doesn’t even have its own online store, although it does collaborate in partnerships to sell flowers and travel offers. Two further discounters, Penny and Netto – owned respectively by the company’s two biggest mainstream supermarket groups Rewe and Edeka – sell a few special offers online every week, nothing else.
Both discounters and mainstream supermarkets face energetic competition from Amazon Fresh and a plethora of other food delivery startups. Rewe and Edeka are rolling out services in response, with Rewe already delivering to customers in 70 German cities.
However, both Rewe and Edeka are handicapped by a large number of independent franchisees who run their stores and who regard the parent companies’ online sales as potential competition. Rewe is trying to win franchisee support by offering a cut of online services. Ironically, both companies own their discount stores outright, making it easier for them to introduce online services lower down the market. In theory, at least.
The reluctance of discounters to offer online services is a serious error, say experts. “The sale of basic groceries, where discounters thrive, is especially at risk from online rivals,” says Thomas Harms, a retail specialist at consultant EY. Online retailers are attacking discounters on price, their traditionally strongest point. Amazon Fresh’s algorithms immediately respond to discounter special offers, cutting its prices on equivalent products.
“In the United States, competitors are already selling offers across many media.”
For Aldi and Lidl, the strategy – if it can be called that – is to experiment with online services overseas, in the hope of learning lessons to be applied at home. In the UK, Aldi sells a range of 1,500 items, including 100 different wines. And business is booming, with customers rising one-third last year, and site visits up 50 percent.
In the United States, both Lidl and Aldi are experimenting with home delivery, collaborating with local startups to bring food to clients’ doorsteps. “We’re collecting important experience,” says Mr. Reichle, Lidl’s head of digital.
Both companies have done things the other way round in China, where they have big ambitions but their brands remain largely unknown. Both have set up small Chinese online operations, mostly selling through the massive Tmall website, which has 500 million users a month in China, Hong Kong and Taiwan. The two retailers have tentative plans to expand offline in the years to come.
All well and good, say experts, but the discounters are very late off the mark. “Lidl’s e-commerce development is behind the rest of the market,” said renowned research group Planet Retail RNG in a recent study. “In the United States, competitors are already selling offers across many media.”
There is also skepticism whether lessons can be transferred across borders. “They can’t just learn something there for the domestic market: the markets are too dissimilar,” says EY’s Thomas Harms. For one thing, American customers are far more willing to pay for delivery.
This may be one reason why Lidl’s online business in Germany is firmly focused on non-food items. In December, the discounter took over bankrupt travel agent JT Touristik. A new Lidl app has also been launched, but for the moment, it only delivers information; a payment function is not yet up and running.
Aldi seems content to keep its distance from the digital world. Instead, it is investing billions in upgrading its real-world stores. “It’s a questionable investment: brick-and-mortar’s best days are behind it,” says Mr. Harms. He urges discounters to get online, and quick: “There’s a real risk they could simply miss the right moment for entry and be left behind.”
Florian Kolf leads a team of correspondents who cover retail and consumers for Handelsblatt. Brían Hanrahan adapted this article into English for Handelsblatt Global. To contact the author: firstname.lastname@example.org