Linas Jegelevičius for the BNN
For the past couple of days two major developments keep Lithuania abuzz. First, there was the political corruption scandal that saw the former Liberals’ leader Eligijus Masiulis fighting off corruption and influence-peddling charges. And then there was the excitement over the arrival of German grocery giant Lidl, which this week launched 15 supermarkets across the country.
A major impact on retail foods market
Having powered its marketing campaign with the slogans «It’s worth living like this» and «Something big is coming to Lithuania» – the latter comes from the lips of the legendary Lithuanian hoops player Arvydas Sabonis- Lidl cannot wait to slice a chunk off the Lithuanian retail food market, which, until now, was shared among four players – Maxima, Rimi, Iki and Norfa.
«Both developments – the fall of Masiulis and the arrival of Lidl – are likely to have long-term impacts on the game. On politics, in the first case, and on the retail grocery market, in the other,» a Lithuanian analyst drew a parallel between the two events.
Lidl opened supermarkets on June 2 inVilnius, Kaunas, Klaipėda, Šiauliai, Alytus, Marijampolė, Kėdainiai, Kretinga, Mažeikiai and Telšiai.
The German food chain has already invested 60 million euros into Lithuania this year and expects to funnel as much into it next year.
At the amount, Lidl investment will be a major foreign direct investment into local economy. Besides, the Germans, who already employed 1647 workers in the groceries, have clinched the largest employer’s nomination in the year’s largest-employer statistics.
Notably, the salary in the Lidl stores is said to be one of the highest in the retail grocery industry- around 600 euros, to believe the leaks.
For the convenience of the shoppers, Lidl has built 120-lot parking lots for cars at the new supermarkets. However, the parking will not be free – each hour beyond the first 90 minutes, which are free, will thin the buyer’s wallet by one euro. To note, after the first three months since the launch.
Half-lower prices than elsewhere
Before the opening of supermarkets, Lidl put out its first groceries catalogue and the prices left many pleasantly surprised.
For example, a kilo of bananas on the opening day will cost only 0, 66 euro cents, compared to 1, 44 euros (!) in Maxima and Rimi supermarkets. The first Lidl buyers will be able to obtain tomato sauce «Mikado» for 0, 45 euro cents, when the Lithuanian product, manufactured in Kedainiai Canned Foods Factory, costs 0, 89 euro cents. Lidl asks 5, 55 euros for a kilo of turkey ham in its stores, whilst Maxima’s price for the meat is around 30 per cent higher. Other foods in Lidl supermarkets bounce up on the price scales, too. A kilo of tomatoes costs 0, 66 euro cents, against Rimi’s whopping 1, 99 euros and Iki’s 1, 35 euros.
«The new Lidl supermarket conception allows us in a full volume implement the key principle of our business – constantly propose the best proportion of the price and quality,» said Radostin Roussev-Peine, director general of JSC Lidl Lietuva, to Lithuania media.
According to him, the prices Lidl has are determined by three factors: large volumes of goods that are ordered from reliable suppliers, effective managements of the supermarkets and their well thought-out delivery.
More competition, more shake-ups
Of roughly1600 names of the goods on the shelves in Lithuania’s Lild supermarkets, around 300 are coming from Lithuanian manufacturers, quite a boost to the local production and contribution to the job market.
Both local diary and meat producers, as well as vegetable and fruit growers, not to mention a slew of small-size local vendors, like bread and bread products bakers, will stock the Lidl supermarkets with the local production.
In a nod to environment- conscious policies, Lidl says it will use in the stores only generation churned up by local renewable energy facilities.
Most importantly, however, the coming, experts emphasize, marks quite a new level of competition in the otherwise stagnant Lithuanian retail food market.
The biggest expectation that most grocery buyers out there has is lower prices with the Lidl stores pop up.
And the hopes, this time, seem to be substantiated.
Maxima has already slashed prices of multiple products ahead of the kick-off of Lidl supermarkets. The largest Lithuanian supermarket chain denied however it had anything to do with the German rival.
According to the Lithuanian Statistics, each Lithuanian spent, in average, around 322 euros for groceries in the first quarter of the year, i.e. 27 euros more than a year before.
As the number of population has shrunk roughly 15 per cent over the last year, the larger expenditures for food products are partly due to the increase of grocery prices.
What are Lidl’s true intentions?
So far, Lidl has wondering both the consumers and food market observers about its true intentions in Lithuania. Will the newcomer try to stand out in the market with the low prices? Or will it, after a dazzling start, assume the rules of game set by the other four food retailers? Also another important question looms: what if the old-timers, unable to measure up against the new player, Lidl, will start to narrow their selection of assortment, which would mean that part of the suppliers will be out of the business?
Commenting on the prices, Regimantas Dzidzinskas, the head of JSC Citma, a fruit trader, says that some of them, like those of chili peppers and bananas are way lower than their cost.
To his knowledge, Lidl has ordered 24,000 kg of bananas for the 15 supermarkets for the first week of sale. Meanwhile, Maxima, Lithuania’s largest grocery chain, he says, usually for a week orders 18,000 kilos of bananas for its 235 stories throughout the country.
Is Lidl dumping prices?
«Bearing in mind the quantity of bananas that Lidl has ordered, it seems that the grocer is intending to give them away free,» the Citma director weighed on the unusually low price of bananas for the time of year, at 0,66 euro cents per kilo.
In his words, the real price of chili peppers hovers around 1, 4 euros per a kilo in the market.
«At 0,66 euro cents, the banana price is certainly below the cost. I believe that the Germans will strive to lower the prices of several goods through the marketing for quite some time for a single reason: make a form inroad into the Lithuanian grocery market. Especially that now everyone is looking at them and measuring against,»the Citma director said.
Lidl has already attempted to enter Lithuanian retail foods marketin 2008, but the endeavour did not play out for the German company.
«Then, when the largest food supermarket chains found out of the plans, all of them colluded to dump the prices, sending Lidl a message that the local market is very cheap and it did not make sense to seek expansion,» Dzidzinskas said.
But Lidl must have learnt from the experience, he believes.
Lidl must have learnt the lessons
«For the first couple of weeks, Lidl will be drastically slashing the prices of several daily products in order to lure customers. It will do so dumping the prices, because most of the shoppers in the stores will pick up not only the cheap items but also any of those which price is as at the rival supermarkets,» the business owner believes.
«Bananas are already making name for Lidl as a chain of cheap foods. But let’s wait and see what the other prices will be there,» a head of another supplier said on the condition of anonymity.
Agreeing, Radostin Roussev-Peine, the director general of JSC Lidl Lietuva, says that, at the moment, all the Lidl prices are aiming to lure the client.
«Certainly, we will be offering discounts at the stage, but in the centre of our strategy is ensuring good quality (of food products) for an attractive price,» he said.
The CEO however declined to say whether the aggressive marketing the company has taken on is the retailer’s long-term tactics.
«We will definitely be monitoring the situation (in the grocery market) and see how it works. But we deem Lithuania’s market very attractive,» the executive underlined.