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Lidl growth plans highlight challenge faced by established retailers

18/02/2015

The growth of digital marketing, consumer analytics and a number of other marketing techniques has become as prominent in retail as elsewhere, but the need for established firms to be smarter, more agile and innovative than ever has been evident in recent years.

For the likes of the Co-op, Tesco, Sainsburys and Asda, the dominance that was once theirs has become increasingly eroded by cheaper competition. Morrisons has had distinctly mixed fortunes, but the bargain basement marketing and pricing strategies of Aldi and Lidl have seen them make major inroads into the market share that was once taken for granted by the big operators.

The latest signs of Lidl's growth have come with the announcement of a significant expansion of its operations in Scotland. It is possible that this decision was delayed by the political uncertainty caused by the independence referendum last September, but now it is full steam ahead.

Having opened its first Scottish store in 1994, there are now 90 and more are planned, with the company announcing plans to open two new outlets in Edinburgh, at Logie Green and on Easter Road, while also moving its Oban store and revamping its outlets in Aberdeen, Dundee, Livingston and Whitburn.

These moves will create hundreds of jobs, but that is just the start as the company is planning to replace its 28,000 sq ft storage facility at Livingston with a larger one that has a capacity of 71,000 sq ft. This vast expansion will add substantially to the workforce as well, with the number of warehousing and distribution staff rising from just over 300 to around 400. In addition, hundreds more jobs will be created at the new or revamped stores.

Manager of the Livingston Distribution Centre Iain Hunter said: "The rise in customer numbers and increase in sales means we are operating an even busier warehouse than ever before.

"We are now shipping more stock every day to our store network across Scotland and we now require a new, larger warehouse to cope with the demand and anticipated future growth."

All this testifies to the success of a company whose strategy for attracting customers has been spot on. It has identified the needs of consumers for low-cost shopping at a time of austerity and talk among politicians of a 'cost of living crisis'. And while the economy is now growing and incomes are rising in real terms due to the very low inflation rate, the message is still one that evidently resonates.

Clearly there is a need for the big competitors to respond in the right way. For some, this will be a particularly big challenge. Tesco is in the worst position, facing claims that it used creative accounting to hide just how much its profits were falling, a situation that has led to significant reputational damage, sweeping changes in the boardroom and the possibility of criminal proceedings led by the Serious Fraud Office. The retailer is now closing unprofitable stores rather than expanding.

The situation may be nothing like as bad as elsewhere, but it is evident that unless the traditional big players in the retail market up their game, they will continue to lose custom to the likes of Aldi and Lidl.

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