Lidl to wage war on rivals with £1.45bn roll-out plan
Discount retailer cements future in UK by opening 50-60 stores a year for next two years
LIDL is set to dramatically double its expansion plans for the UK with a £1.45bn roll-out that will see at least one new discount supermarket open every week for the next two years.
The move is part of a plan by Christian Härtnagel, the new UK boss, to ensure the supermarket remains the fastest-growing supermarket in the UK after seizing 5pc of the British grocery market. Under the bold strategy, Lidl will be investing £1.45bn into the UK over two years and open between 50 and 60 supermarkets a year for the next two years. “That is the fastest we have ever grown in the UK and I expect this to continue for the foreseeable future”, said Mr Härtnagel.
The German discounter, which already has 670 shops in the UK, last year opened 35 supermarkets and has previously stated its long-term ambition to have 1,500 shops in the country.
Mr Härtnagel, 34, unveiled the ambitious plan to The Daily Telegraph in one of his first interviews since replacing Ronny Gottschlich, who abruptly left the business last September.
He revealed that he was informed of his relocation to the UK just one hour after Mr Gottschlich was told that he no longer had the top job. Mr Härtnagel, who has spent his entire career with Lidl, said that the biggest surprise since joining the UK business had been the intensity of the competition between supermarket rivals Tesco, Sainsbury’s, Asda, Morrisons and Aldi.
However, he said that the return of inflation to the UK food market would be a benefit to Lidl. Fresh figures last week revealed that disposable incomes fell by 2pc last year, giving households the tightest financial squeeze since 2011 as wages failed to keep up with rising costs.
“When there is inflation, it is always a discount market and we clearly see the business opportunity there because we can tell shoppers that you can be 100pc sure you are paying the lowest price on the market”.
The Nuremberg-born chief executive said that one of his biggest concerns for Lidl’s UK business was the future of its 25pc of non-uk supermarket workers. He said that he hoped the rights of workers was on the “highest” agenda in Brexit negotiations.
“We need clarity for our colleagues here, but also for our UK employees who are working for Lidl in different countries. I just want to have clarity, because then I can prepare,” he said.
Around 70pc of produce Lidl sells in its shops comes from the UK, while it sources other goods, such as Italian parma ham, from Lidl buyers in those European regions. It also ships UK produce, including cheese from the West Country and Scotch whisky, to its stores across Europe.
Mr Härtnagel revealed that Lidl had an online team of just two people dedicated to analysing the rapidly changing online grocery market, including Amazon’s recent swoop on US upmarket grocery chain Whole Foods. However, he said that a move to online grocery was “not around the corner for Lidl” as UK shoppers had such high demands for speedy deliveries.
Last month, Lidl launched an assault on the US market with plans to rapidly open 15 budget supermarket stores. Mr Härtnagel said that Lidl’s recent hiring of supermodel Heidi Klum to launch an affordable, own-brand fashion range would help address people’s misconceptions about its budget clothes in the same way it had addressed perceptions about its cut-price food.
Christian Härtnagel interview:
Most mornings Christian Härtnagel’s alarm clock goes off at exactly 6.52am. “Not at 6.50, 6.52 – I know, it’s embarrassing but it’s all about German optimisation,” the boyish 34-year-old chief of Lidl UK says, exploding into laughter aware that he’s not doing much for Teutonic stereotypes.
The military morning routine is just one of the things that gives away how the Nuremberg-born boss has so rapidly scaled the career ladder to run the UK’S fastest-growing supermarket at a time of intense change for the grocery sector.
“I’m really amused by this obsession with my age, because my girlfriend always tells me how old I am,” the Lidl boss says, although his smiley, round face makes him look almost 10 years younger.
Härtnagel’s arrival in the UK nine months ago was initially shrouded in mystery. He was an unknown in this country, parachuted in to take over from Ronny Gottschlich, who was suddenly and abruptly fired by his German paymasters after six years at the helm.
Rumours spread that the costfocused Lidl parent group was unhappy with Gottschlich’s reliance on marketing and a strategy that seemed to have drifted too far away from the stern discounter model. Lidl has remained extremely tight-lipped on the matter but Härtnagel’s approach seems to suggest bosses didn’t think his predecessor had his foot hard enough on the pedal. “I found out in a hotel room that I was being made the head of UK just an hour after Ronny was told … I don’t know the details about why he left,” Härtnagel says of the boardroom shuffle. “I was told by our global boss and arrived here two days after Ronny left. I’ve flown back just once since then to clear out my office.”
He says all this in an unusual and surprising Irish lilt, due to the time he spent running Lidl’s Irish division in Charleville, County Cork. The three years rubbed off on him – his speech is occasionally peppered by the odd “to be sure” and he reveals his three-yearold son is called Connor. “When I arrived I had very basic English, it was all ‘two beers please’, but the Irish are very friendly people.”
Despite a relaxed manner as evidenced by his introduction of a “no suits” policy, it’s clear that he has had the “Lidl way” drilled into him in the same way as an army sergeant.
He is more than aware that all eyes are on him and he must keep growing Lidl’s market share, which has now climbed to 5pc in the UK.
Around 50pc of the British public shopped at a Lidl store last year, reflecting the German discounter’s rampant expansion programme and strategy of winning over the middle classes with bargain prosecco and cut-price charcuterie.
But Härtnagel insists Lidl isn’t just focused on winning over the middle classes from the “Big Four” and says, for the sixth or seventh time during the afternoon, that “we really are just targeting people who simply want the lowest price”.
“Sorry to bore you with that but that’s what we do, it’s in our Lidl DNA and it works because we don’t get distracted from it.”
Härtnagel thinks that the main reason the rest of the population don’t enter his doors is because they can’t reach one of Lidl’s 670 stores as easily as its competitors. This leads him to reveal that he is aggressively stepping up Lidl’s expansion with a plan to roll-out “at least one shop a week”. He says that Lidl has already agreed sites to add between 50 to 60 shops a year for the next two years, compared to the 30 opened last year. The investment will be at least £1.45bn between now and 2019. “That is the fastest we have ever grown in the UK.”
Alongside the store openings, Lidl is also investing heavily in new distribution centres, which are run with the utmost German precision, although are scant on the type of robotic picking machines that rival grocers are obsessed with.
A tour of the warehouse reveals Härtnagel’s relentless enthusiasm for logistics, but also ways to make and save money. An otherwise basic recycling area, which processes broken wooden crates and cardboard to sell on to other plants, makes him excited: “I like it because it’s ‘discounty’, it’s getting the maximum money out of something.”
Härtnagel admits that Lidl’s profits will undoubtedly be lower this year “because of the huge investment figure and the effect of Brexit. But we are privately owned and we are still focused on our long-term profitability”. Around 75pc of the workforce in Lidl’s warehouses and stores are British while 25pc come from outside the UK, a fact that is of huge concern for Härtnagel following the EU referendum and the continued jockeying over the rights of workers.
“A quarter of our employees have an unclear status at the moment due to Brexit and I hope the significance of this means that the movement of people will have the highest agenda it can have in negotiations,” Härtnagel says, without directly referencing the fact that he is one of them. “We need clarity for our colleagues here but also for our UK employees who are working for Lidl in different countries. I just want to have clarity, because then I can prepare.”
While rival low-cost supermarket Aldi has been desperate to shed its “German discount” moniker by sponsoring Team GB in the Olympics and talking up its British credentials, the young retailer is proud to wear Lidl’s German history as badge of honour.
“I am very proud of our German roots, but 70pc of our people are British and 70pc of our products are British. It’s unrealistic to say that our food will ever be 100pc British, because we can’t grow a banana over here, for example.”
Lidl’s food selection has come a long way from being known for canned vegetables and sauerkraut after ramping up its fresh food and meat, and Deluxe range, which even included Negroni-flavoured crisps over Christmas. But it still stocks bratwurst from Härtnagel’s Nuremberg – could that just be hometown loyalty? Härtnagel breaks into another uproarious laugh: “Nothing we sell is just about loyalty, it’s a product that sells well or it wouldn’t be part of our range.”
His reputation as the supermarket chain’s poster boy even meant that 200 employees were recently flown into the UK to learn the “Lidl way” before heading to the US for the supermarket’s ambitious plan to open
‘I am very proud of our German roots, but 70pc of our people are British and so are 70pc of our products’
100 stores there. It is a move that will be watched closely given the US has been the deathbed of many European retailers, notably including Tesco’s humiliating Fresh and Easy failure.
“The easiest thing we could have done is buy a competitor in the US. Because there’s a lot of them and many are struggling. But that’s not how we do things; if we build a business our way, we can make it efficient rather than lose on legacy problems.”
One move that Lidl is hoping will boost its credentials further is the recent addition of German supermodel Heidi Klum, who will roll out a range of clothing later this year. Härtnagel can barely hide his delight at having the former Victoria’s Secret model on his team. “As a British business, I couldn’t afford Heidi, but now we are a global business we can.
“I think we have done a great job addressing people’s misconceptions about our food, and Heidi will help us do the same with fashion,” he says.
Even though Lidl has expanded rapidly it still has no online presence, which is an area of continued speculation as shopping patterns shift, and discount rival Aldi last year launched an online service for cases of its cut-price wine.
Härtnagel reveals that he has a team of two dedicated to analysing all the online options available. Lidl has an online presence already in Germany, Belgium and the Netherlands but Härtnagel insists that it is not around the corner for the UK.
“The UK is the most advanced online market in Europe and customers wouldn’t be happy with goods being delivered in three or five days, they want it the same day or the next day.
“I’m convinced that if we just focus on our core supermarkets we will have so much more to gain.”