Do Lidl's American plans pose a threat to Delhaize?

According to a report from Barclays’ analysts, Lidl‘s planned arrival in the United States may harm Delhaize’s Food Lion stores, although Delhaize may seem well-positioned to fight back.

Rapid expansion

Lidl’s rapid international expansion had been limited to Europe so far: the discounter only opened its first non-German store in 1988, but is now present in 26 markets and its international sales represent 66 % of the group’s turnover.

Aside from Germany, its most important markets are France, the United Kingdom, Italy, Poland, the Netherlands and Spain, according to Barclays. The analysts feel there is still a lot of potential in the United Kingdom, Spain and Poland.

We can add that Lidl also has expansion plans for Belgium, where it managed a 1.85 billion euro turnover in its broken fiscal year 2014-2015 (according to IGD). By 2017, this should have increased to 2.04 billion euro.

Potential threat

Parent company Schwarz displays ambition as it seeks to grow more than 25 % by 2020, which suggests it will expand even more, even outside of Europe.

Lidl’s decision to enter the United States in 2018 is a turning point in the retailer’s strategy. Its main office will be located in Virginia and it has apparently already chosen 80 future store locations, in 8 states across the East Coast.

That means it will become a direct competitor for Food Lion. On top of that, Aldi, which acquired the Bottom Dollar chain from Delhaize, has also targeted the East Coast for its own expansion. The potential regional threat of these hard discounters may have been one of the underlying motives for the Ahold – Delhaize merger.

Limited impact

The report also suggest the impact may be limited as Delhaize has proven (in Serbia, Romania and Belgium) it can oppose these discounters. It should be able to do the same in the United States, where Food Lion has better like-for-like numbers than its major competitor, Wal-Mart. 

American consumer behaviour is also changing: Fresh, health and wellness are on the rise and Food Lion’s new formula (Fresh, Easy and Affordable) is better suited to fight off hard discounters as it taps into this new trend. The merger with Ahold will also lead to better purchase conditions in the United States.