Lidl has achieved a nice increase in sales in its international business, although the pace of growth is slowing down a little following the pandemic. The discounter manages to maintain its margins in most countries, with one painful exception…
Growing market share
German discounter Lidl now operates in 32 countries: it recently added Latvia (October 2021) and Estonia (March 2022). The retailer has transferred its international operations – all activities outside Germany, accounting for more than two thirds of the retailer’s total sales – to the company Lidl Stiftung & Co KG. The latter’s results are now known for the broken fiscal year 2021/22, which ended in February 2022, as Barclays analysts dipped into the figures.
Turnover from Lidl’s international operations grew by 7.1 % to 66.7 billion euros in the last financial year, down slightly from the growth of 9.5 % in the previous financial year. This slowdown is not illogical given the removal of Covid restrictions. Lidl did gain market share in most countries. The retailer remains strongly committed to expansion: investment rose by 13 %, back to pre-pandemic levels.
Mixed messages
In France, sales rose 4.1 % to 15.1 billion euros, with a market share that is now almost 8 %. The retailer did open 35 new shops there last year and is investing heavily in communications. In Spain, sales went up 6.6 % to 5.1 billion euros, thanks in part to the opening of 40 shops. The discounter is number three there with a 5.8 % market share, as the Spanish market is still very fragmented. In Italy, the retailer opened 42 shops and now has 700. Sales grew 6.9 % to 5.9 billion euros. In the United Kingdom, Lidl achieved a modest sales growth of 1.5 % to 7.8 billion pounds (9 billion euros).
It does contrast sharply with the record losses Lidl recorded in Belgium, due to major investments in expansion and rising operating costs in its shops. They are now broadening their assortment and putting more emphasis on fresh produce, which requires more labour on the shop floor. Belgian sales went down 2.2 %, to 2.59 billion euros as competition there is fierce.
Strong margins
EBITDA margin did contract by 20 basis points, but at 6.83 % it remains higher than most competitors and also higher than in the years before the pandemic. Gross margin went down ten basis points, as staff costs rose due to expansion and wage increases. However, the discounter does not have a productivity problem: sales per full-time equivalent rose to 396,000 euros a year. With an operating margin of 4.3 %, Lidl is doing better than the average in European food retail.
For the current financial year, Lidl expects moderate sales growth and net profit at last year’s level. However, there are too many uncertainties to communicate concrete forecasts. However, the retailer does remain committed to expansion, to modernising its shop network and internationalising its internet business. In France, Lidl sees potential to grow from the current 1550 shops to 1800, in Spain 150 new shops and four logistics hubs are planned by 2024. In Italy, 150 shops are to be added by 2024, with a potential of 1,000 shops by 2030.
Vertical integration
As for online, a tough nut to crack for hard discounters: parent company Schwarz Group previously announced that online sales at Lidl and Kaufland barely 1.3% of the group’s total sales. Customers still cannot order food online or have it delivered at Lidl. However, the discounter is further expanding its digital loyalty app Lidl Plus in Europe. In France, for example, that app already has more than five million users, and their average shopping basket is 50 % higher than that of other customers. In several countries, Lidl is also integrating a payment service into the app.
Noteworthy, finally, is the fact that Lidl is also committed to vertical integration, for example in transport and manufacturing. Recently, the retailer started its own shipping company, Tailwind Shipping Lines, to better control its supply chain and high container costs. The discounter also acquired a number of manufacturers, including a producer of private label pasta, and a paper mill.
Lidl International turnover growth
Operational margin Lidl International
