The Malta Independent on Sunday
THE LIDL RIDDLE: Does it pay us to give preferential treatment to a global player
Does it pay us to give preferential treatment to a global player?
A Regional Hub for whom?
Lidl is a German global discount supermarket chain based in Germany which operates over 10,000 stores across Europe. To date, there are seven Lidl stores in Malta and Gozo.
Speaking during a Gvern li Jisma consultation meeting, Minister Cardona said the chain had reached a deal with Malta Enterprise and Malta Industrial Parks which would lead to the creation of more than 120 jobs and boost local exports.
He said the deal will also benefit local producers, noting that the German chain would be buying €22 million worth of products from local manufacturers within three years. Most of the products will be destined for export, he said. At present, Lidl purchases around €3 million worth of products locally.
But here is the first catch because Lidl is essentially an importer, otherwise the model it has adopted over the years wouldn’t make economic sense. It is a fact that Lidl’s strategy across Europe is to reinvest some of its profits back into the price but another of its strong marketing tools that guarantees control over the product they sell is to limit its range of products. This has created a new shopping experience for consumers who are lured into the giant stores with catchy sound bites of selected items that are heavily discounted but are then lumped with a limited choice once in the store. Over the years, Lidl has made sure that the limited choice of products are genuine and of good quality, but it’s the price that drives the sale and not the brand, as with other traditional supermarkets.
Lidl Malta prefers to pay fines to withhold accounts
It is very hard to establish how much Lidl earns, how much it reinvests, and how much it imports, let alone how much it will be exporting Maltese products if it had to live up to its promise made to Malta Enterprise in exchange for a regional hub on public land. It is so hard to understand the financials behind Lidl’s success story in Malta because the Group has failed to comply with financial legislation, which demands that companies operating in Malta should submit their accounts on a yearly basis to the Malta Financial and Services Authority (MFSA). Since 2005, Lidl has only submitted its accounts five times. In those cases when it did not submit its accounts, Lidl still pays daily fines to this day; apparently, it must be more advantageous for the company to pay fines instead of submitting its accounts, as is their duty. In the meantime, local supermarkets follow the law and their accounts, filed at MFSA, are there for everyone to see, including Lidl.
Is Lidl getting a better deal, and for what?
Three weeks ago, The Malta Independent
on Sunday sent questions to the Economy Ministry to supply information on the agreement reached between Malta Enterprise, Malta Industrial Parks and supermarket giant Lidl for the setting up of an International Regional Distribution Centre in Malta.
We wanted to know details of this deal which is rumoured to have given Lidl further tax breaks along with public land in Hal Far which is rarely, if ever, granted to Maltese importers who desperately need space to stock their imported products.
Lidl will now have an edge over other Maltese importers and supermarkets that have to invest in private warehousing facilities and buildings to house local projects such as the case with PAMA in Mosta, the latest shopping mall and supermarket to come on the market. PAMA is an all-Maltese private enterprise that pays corporate tax and employs Maltese workers and deposits profits in Maltese banks. Like PAMA, there are others who depend on Maltese shoppers and together they contribute to Malta’s economy. But these local entrepre- neurs do not benefit from virtually free public land on which to build their warehousing facilities similar to that being granted to Lidl by Malta Industrial Parks on the pretext that Lidl will be exporting local products to their supermarket chain of 10,000 outlets. One needs to weigh the consequences of this deal.
Lidl outlets across Europe will be importing 730 € worth of Maltese goods each year
Short of information which never materialized from the Economy Ministry, let us do the Math on this claim of €22 million in exports over three years. It adds up to €7.3 million each year. Lidl is renowned for its tough price negotiations with local suppliers across Europe. On the other hand, should Lidl decide to dump Maltese products in all its 10,000 supermarkets across Europe, each and every outlet will be selling just €730 worth of Maltese products each year.
If it does materialize and Lidl truly exports €7.3 million in Maltese products each year, one has to compare the benefits of that with what the country is giving Lidl. Malta is giving Lidl public land and tax breaks which will eventually make the company stronger and able to offer cheaper prices to beat the local supermarkets. Are we placing the cart before the horse and to what benefit? Will it be only Lidl that wins in this deal?
More jobs at Lidl can cost others in local shops
Even the jobs argument needs a thorough investigation. With an ad-
Following the news announced by Minister for the Economy Chris Cardona that supermarket chain Lidl is to establish a regional distribution centre in Malta, The Malta Independent on Sunday has weighed the pros and cons of such a move, and if it is true that Lidl Malta has been enjoying preferential treatment by politicians from both ends of the spectrum. What is so attractive in Lidl’s economic model that sees it get its way with public agencies such as The Planning Authority and Malta Enterprise?
ditional job boost of 120, as announced by the Minister, one has to weigh the loss in jobs if Lidl continues to drive small and medium sized food retail outlets out of business. While the local large supermarkets will find a way how to combat competition, the smaller convenience stores will find it much harder to survive since they depend on importers who in turn will find themselves at a disadvantage when competing against another importer with state benefits to which they have no access. The same argument applies to jobs in the bottlers’ sector where it is evident that if the local bottler doesn’t submit to Lidl’s wholesale price. Lidl will either crash the market with its own version of cola or fizzy orange fizzy drink, or parallel imports the brand in question. Either way, Lidl wins.
Lidl is not just a food store, it is much more
The new Lidl regional hub granted by the government will stock imported products along with those it will be exporting. This is apart from the argument that public warehousing is usually granted only for export. However, Lidl is not just a food retail outlet as it sells many other non-branded products from shoes to stationary to furniture and tools. These products are placed on shelves, or pallets, and people race to snatch the latest crazy deal. The profit margin on these products is greater than that on food items. These products will most probably be warehoused in the new regional hub granted for the export premises, but none or very little of the exported Maltese goods will give the same profit return to the Maltese supplier. This means that Lidl will get public land and possibly tax breaks but the return it gets on these non-food products will again enhance its profit base making it richer and much stronger in cash flow. It follows that Lidl will not need the support of local banks like other local importers, thus it will be far less constrained with interest fees and cash flow problems.
Are Maltese consumers getting what their government bargained for?
It is also pertinent to ask if Maltese consumers are actually getting discounted prices like their fellow Europeans when buying at a Lidl store. A letter to the editor which appeared in one of the local newspapers sums up the dilemma. It read: “Will Lidl Malta explain how it sells a microwave oven at €99 when the same oven is advertised by Lidl Italy on RAI TV at €59, on the same date, and when VAT in Italy is higher than in Malta? The difference is €40.”
Competing with a global player like Lidl is already hard for other groups of the same size, but for Maltese companies to fight a pricewar against a giant that is also getting public land and tax breaks, makes it close to impossible manage.
According to an article in The Financial Times, “At the vanguard of discount food retailing are German privately owned groups, Aldi and Schwarz, which owns Lidl. According to Planet Retail, Aldi is the world’s leading limited assortment grocery, with total sales of €61.1bn in 2013, followed by Lidl at €59bn. However, the consultancy forecasts that Lidl will overtake Aldi by 2018 at the latest, when it will have €79.23bn of sales, compared with Aldi’s €76.12bn. Schwarz could also this year overtake France’s Carrefour as western Europe’s biggest food retailer.”
In a report by credit rating agency Moody’s in 2014, it had warned that local supermarkets which are considered the top four in the UK, will suffer major drops in revenue because of great discounters such as Lidl. The report said, “Moody’s notes that discounters Aldi and Lidl are now entrenched and their combined market share could reach 10% over the next couple of years from 8.3% today. Over time, their UK market share could be similar to that in other European countries at around 12%-15%. Moody’s projects that discounters’ 20%-30% annual like-for-like UK sales growth will slow, but some of the anticipated lower like-for-like growth could be offset by new store openings. This will put additional pressure on the Big Four’s large stores, where footfall continues to decline.”
So where does it leave Maltese entrepreneurs who invested heavily in new supermarkets and warehousing facilities? Do the Maltese want super discounters the likes of Lidl? Of course they’re welcome. Should they get a better deal than local investors? This is hard to answer because our politicians seem to think that they should, considering that they have been closing secret deals with Lidl nonstop. Even the Malta Chamber of Commerce is mum on the issue.
Why is Lidl opening so many supermarkets in Malta so quickly?
To add insult to injury, in the years it has been operating in Malta, Lidl has had it very good with its planning applications. Three of its supermarkets have been built on ODZ land – Luqa, Safi and partly Gozo and the Group has plans to build another one in Birkirkara, again on ODZ land. The one in Mosta got the green light to turn an industrial park into a supermarket. When one compares the number of Lidl outlets per square metre in Malta to other countries in which the Group has supermarkets, one will find that Malta has, by far, the largest number of Lidl supermarkets per square metre in Europe. One wonders why such heavy investment is being made in such a small land. Is the financial package the group has in Malta so attractive that Lidl continues to open more supermarkets so quickly?