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Mike Rigby
Managing Director
mike@mra-marketing.com
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13 December 2016

A Lidl surprise

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In 1977, most high streets had a Tesco. But they weren’t today’s superstores, they were relatively small and cramped. Tesco still believed in its ‘pile ‘em high and sell ‘em cheap’ philosophy. It was the budget brand of its day, but it was ambitious, and thought it had found the formula to grow. Its highly successful national promotion ‘76 had brought in extra volume and it aimed to build on that momentum. So it blasted its 10%-off campaign via prime time television commercials and full page ads in the national papers.

Day after day, long queues of shoppers snaked up the high streets outside most of Tesco’s stores. Inside you could hardly move, and many shelves were empty. But people kept buying, so Tesco extended the campaign.

It was so successful that during the period of the campaign they achieved total sales growth of 55%, an astonishing result. But it was a near disaster. They made a thumping great loss which nearly put Tesco out of business. As a budget brand, margins were wafer thin and breakeven sales were calculated later to be 67%, well above the level at which the stores had bottlenecked. Only above that point would they have made any additional profit. But they could not have got more trucks to deliver in the high street, nor could they have got more people into the stores. From a marketing point of view it was curious that Tesco did not realise until afterwards that they were attempting the impossible.

Having learnt their lesson, they turned to marketing and moved up market, up-scale and out of town. They pioneered premium own brands, structuring promotions to look sharp and pull people in while protecting their margins. They grew to just under a third of the market, and dominated play and grocery marketing for the next three decades.

Then along came the Great Recession. It changed consumers’ shopping habits and opened the door to the German discounters, Aldi and Lidl. With a limited range and low prices they’ve grown very quickly and run rings around the Big Four. Tesco appears to have stopped the retreat and rebounded in the 12 weeks to October 9, but Sainsbury’s fell a further 0.4%, Morrison’s 3% and ASDA dropped a further 5.2%. Together Aldi and Lidl have carved out 10.8% of the market and grew 11.4% and 8.4% respectively in the last three months.

The Big Four are fighting back, but Aldi and Lidl are investing heavily in more stores to more than double their share. It’s likely we’ll be looking at the Big Six in future plus online competition, which will trigger further massive change.

History never repeats itself exactly, but there was more than a touch of déjà vu when Lidl’s marketing director spelled out the latest ‘Lidl Surprises’ campaign, aimed at convincing doubters of the quality of their meat. The campaign was inspired by research that confirmed that many Britons still think of Lidl as a budget brand with budget produce. The headline ad features a consumer who had doubted the quality of its meat. She is shown visiting Perthshire, Scotland to meet a beef farmer who talks her through the provenance of Lidl’s meat production. Another ad shows a converted doubter visiting a mussel farmer at a fishery on the Isle of Mull. Future variations will show Lidl doubters visiting its wine and fruit and vegetable suppliers.

The significance of Lidl’s new advertising, and the start of its journey from budget brand to upper middle, won’t be lost on Tesco whose own journey followed the same path.

Retail has turned into a battleground, and the same forces are operating in building supplies too, if rather more slowly. Is it coincidence that in recent months the national merchants have announced significant branch closures and redundancies?

Many Tesco customers are Lidl customers, and many builders and builders’ merchants buy from them and Amazon too. Bunnings is tearing up the rule book, and everyone’s wondering when, where and with what range Amazon enters building supplies at scale.

A few merchants are integrating online into their overall service, and making good progress. Small builders and tradesmen are up for it. The smartphone is a builders’ best friend, their office in their pocket! But has most of the industry left it a little late?

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