Monday 11 December 2017

Lidl boss out to make a difference as he plots more new-look stores

The German brand has come a long way since its early days in Ireland. Brighter, bigger stores are helping it grow. It prides itself on innovation and being cheapest - just don't call it mainstream

'There are more than 10,000 Lidl stores in Europe, so the opportunity presented for an Irish food or drink producer in getting a wide listing within the group is enormous,' says 35-year-old John Paul Scally
'There are more than 10,000 Lidl stores in Europe, so the opportunity presented for an Irish food or drink producer in getting a wide listing within the group is enormous,' says 35-year-old John Paul Scally
John Mulligan

John Mulligan

Open-plan offices, funky furniture, break-out area in the atrium, hipsters and an archaeological dig required to find anyone over the age of 40. You'd be forgiven for thinking it's some Silicon Docks tech hub, but it's the depths of Tallaght, the wrongly maligned south Dublin suburb where German retailer Lidl has made its Irish headquarters.

JP Scally must be starting to feel like he's an anomaly in that seventies movie, 'Logan's Run', where anyone who reaches the age of 21 is killed off. At just 35, Scally (who started with Lidl almost 14 years ago out of college) is the managing director (and chairman) of an all-island retail operation in Ireland that includes almost 200 outlets (38 in Northern Ireland) and in the Republic has sales of about €1.4bn a year.

It's a hallmark of Lidl that age is irrelevant. Ability is what counts. Responsibility is thrust upon those ready and able to shoulder it. Scally was appointed MD in 2015.

"People who show potential, people who achieve results in the business have the opportunity to develop their careers very, very quickly," says Scally. "That's not just in Ireland, but internationally as well."

Most recently, the Irish Lidl arm had 1,000 applications for 20 graduate positions.

Before he took over as managing director of Lidl's Irish business, Scally had served time abroad, running 550 stores in France before boomeranging back to Ireland.

A graduate of NUI Galway, where he studied industrial engineering, Scally initially worked for Lidl in a construction specification role before moving into logistics and later to positions in Germany and that role in France.

Lidl doesn't break out sales figures for the Republic, so calculating its sales involves inference. Its estimated figure of about €1.4bn is based on its share of the value of total sales in the Irish market according to research group Kantar Worldpanel.

The latest of those figures, published this week, show that Lidl has a 12.1pc share of Ireland's grocery market based on the value of sales.

Musgrave, which controls the SuperValu brand, noted earlier this year that SuperValu sales in Ireland hit €2.67bn in 2016. SuperValu has more than a 22pc share of grocery sales. Extrapolating from there gets Lidl's €1.4bn figure.

Even on a tight margin, let's say somewhere between 1pc and 2pc, it means Lidl would be making profits of up to €28m a year in Ireland. But that's just guesswork, and Scally, the son of retired dairy farmers in Tyrellspass, Co Westmeath, won't give any indication on whether either the turnover or profit figure is in the right ballpark.

"We're a private company and we don't disclose our profit and loss, but we do work on very tight margins," says Scally. "We're not beholden to shareholders at the end of every quarter. We don't have to deliver on targets and we can reinvest in the company."

Lidl is owned by the family-owned Schwarz group in Germany, which also owns retailer Kaufland. It's the second-largest retailer in the world after Walmart.

"There are tougher years than others," says Scally. "There are some years when you focus more on investing in our network, investing in marketing campaigns, and pushing development of the business. It's not something that I lose sleep over."

Today, Lidl opens its 152nd store in the Republic, in Portmarnock, Co Dublin (two more will open later this year, at Wilton and Bantry in Cork). Between 2016 and 2018, Lidl will have spent about €80m in Ireland on new stores, revamps and a huge new distribution centre it's planning to build in Naas, Co Kildare, that will serve the Dublin region.

There's been a phenomenal pace of openings since the chain first welcomed bemused Irish shoppers in 2000 with seven outlets.

The chain may still be cheap, but the cheapness and maybe even surliness of its much earlier days have long vanished.

New stores are bright and airy, and more spacious for shoppers. The chain has invested heavily in staff training.

Fresh vegetables flank customers as they enter, as do freshly-baked goods - two key selling points for the chain, whose shelves typically stock about 2,000 products compared to as many as 20,000 in rival chains such as Dunnes Stores, Tesco or SuperValu.

And if ever the garish blue and yellow Lidl bag was a badge of shame, the downturn almost made it a fashion accessory.

On a volume basis, industry insiders reckon that Lidl and Aldi possibly have the biggest market shares in the country.

Scally says that Lidl's products are between 20pc and 40pc cheaper than those at rival chains, with many of the goods made by the exact same suppliers. The packaging's just different.

But it appears that there remains a challenge in persuading many consumers that Lidl is the place that they should be splashing their hard-earned cash.

"We know from data that one-in-five households would do their weekly shop in a Lidl store," says Scally. "We know there are people out there who still aren't shopping with Lidl and we want to give them that opportunity, whether that's through new stores or marketing campaigns that attract them.

"I don't think we're nearly at saturation point yet," he adds, pointing out that the new shop formats have also helped to attract more shoppers.

Scally baulks at any suggestion that Lidl has become a mainstream grocery chain.

"I definitely wouldn't use the word mainstream. We're different, in that we are flexible, we evolve, that we are innovative. But has remained constant over all the years is that we are committed to being cheapest in the market.

"For a lot of people, they realised that during the most difficult years of the recession. While we're very focused on getting the customer experience right, while we have expanded our range massively, one thing that has been constant is the price."

Scally says the weekly Lidl special offers - anything from bedding plants to angle grinders - typically sell out. They've become a rallying call for customers, also attracting shoppers who might not typically do their food buying at the chain. Get them in the door, and maybe they'll change their minds.

"Our aim is to sell out and that those products only sit in store for a few days or a couple of weeks at most, because space is limited," he says, adding that it's the team in Ireland which selects the weekly specials. Lidl Ireland, which has its own board, has also become heavily involved with domestic producers, having partnered with Bord Bia for a supplier development programme it calls Kickstart.

"We saw a gap in the market to do something," says Scally. "It wasn't so much about the products, but about how we can support small food suppliers because we've benefited a lot from the Irish food and drinks industry ourselves. It gives them the leg-up they might need and who knows where the future might take them."

Scally says that Lidl Ireland is one of the big exporters within the wider group of domestically-produced goods. "Last year, we exported more than €200m worth of Irish produce," he points out. There are more than 10,000 Lidl stores in Europe, so the opportunity presented for an Irish food or drink producer in getting a wide listing within the group is enormous."

Meat is exported to Lidl shops in 12 countries by Slaney Foods (which has also inked a new deal to supply meat to Lidl in the US) and Liffey Meats; cream liqueur to 10 by Cavan-based manufacturer Terra; while Kildare-based Comerford's Bakery sells Lidl a whopping 52 million buns a year, and also now exports buns to Lidl UK.

Scally says the chain doesn't charge suppliers so-called 'hello money', or a premium for shelf space - both of which were ostensibly outlawed last year for retailers with annual turnover of more than €50m, unless the terms were already included in a pre-existing contract.

Meanwhile, Scally says the Irish and other country teams have significant autonomy from head office in Germany, without deviating from the group's core principles.

"When it comes to specific product offering in stores, when it comes to our specials and the way we manage the business in terms of recruitment and training, that's different from country to country," he says.

Significant trust was placed in the Irish unit by head office for its foray into the United States, which saw the first Lidl stores open there last week. The US operation is headed by Scally's predecessor in Ireland, Brendan Proctor (who's a positively ancient 43). A number of other senior managers in the US are also Irish.

"We gave a lot of support," says Scally. "We had a few hundred people who trained with us for the US operation. That was mostly area managers and store managers, but also training for head office functions. Some of them spent over a year with us."

Many, if not most, had previously been involved in retail in the United States.

"They were most impressed by our lean operations, and how simple we make everything in our business," adds Scally.

"Lidl in Ireland would be seen as doing things well, so it's something we're trying to replicate in the US. Irish-American relations outside of Lidl have also, obviously, always been strong, so it was a natural enough fit."

Earlier this year, Lidl appointed a new group chief executive - its second in less than years.

Jesper Hojer, a Dane, succeeded Sven Siedel, who had unspecified differences of opinion regarding the retail chain's wider strategy.

Hojer (38) has been with Lidl for about 10 years. He was previously responsible for Lidl's operations in Belgium and was most recently the company's head of international buying.

So did Scally go for the job? He laughs, and insists he didn't.

"I didn't. I'm focused on the job I have in hand here. There's a lot more work to be done to develop our business here. My work is not done."

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