Mister

Aldi and Lidl: International expansion of two German grocery discounters1 It’s the best business model for retail in the world. Philippe Suchet, food industry consultant, BNP Paribas With a worldwide annual sales volume of € 3.7 trillion in 2007 and an average annual sales growth of 2.7% during the last ten years, the grocery retailing industry can be considered as one of the world’s key economic sectors. Over the last decades, grocery discounters such as Aldi and Lidl have strengthened their position in the grocery retailing industry – especially in Germany and Europe. With their no-frills approach, they have led to significant changes in the industry and have challenged many companies, which operate other store formats such as supermarkets or hypermarkets. In this context, a Financial Times report on international retailing noted in 1995: "The spread of the discount format has been particularly disruptive to Europe's grocery retail industry and has driven retailers to examine cross-border markets." Exhibit 1 illustrates the leading grocery retailing companies in the world and on a
Worldwide top 10 grocery retailers 2007 Company 1 Wal-Mart 2 Carrefour 3 Metro 4 Tesco 5 The Kroger 6 Schwarz(1) 7 Seven & I 8 Costco 9 Target 10 Aldi Home country USA France Germany UK USA Germany Japan USA USA Germany Worldwide sales volume in € bn 287.6 103.2 74.8 73.3 53.8 51.9 51.1 50.9 50.5 47.1

European level. The grocery discount format The key terms describing a grocery discounter are minimalism and efficiency, which are integrated into all business areas. In fact, grocery discounters’ ambitions are to sell quality products at the lowest price possible. To realise profits in spite of the low prices, grocery discounters reduce their costs to a minimum and attempt to generate high volumes of sales through a limited product range of fastmoving items. The approach of cost reduction especially affects the spending for store design, customer service and advertising: grocery