The entry of the German retail network Lidl into the Ukrainian market was reported last week in the Ukrainian media, referring to the leak of an internal letter published by Lebensmittel Zeitung. Despite the information not being official yet, EastFruit experts analyzed what this could mean for the Ukrainian retail trade in fruits and vegetables, for Ukrainian farmers and vegetable growers, and for the retail business in general.

If the Lidl chain enters the retail market of Ukraine, it could become the largest event in the history of the country’s retail. Therefore, we advise you to read this material to the end.

Since EastFruit has been conducting retail audits of fruit and vegetable departments of supermarkets around the world for many years proving that the fresh vegetable and fruit department is the key to overall success in the retail business, we have full information on the positioning of Ukrainian supermarket chains and their ratings by assortment, prices, quality of products, department and service. We’ve also learned a lot about the Lidl model, which is unique in many ways.

An even more detailed and unique analysis of fruit and vegetable retail can also be obtained at the “Retail Forum – 2021” by the APK-Inform project: vegetables and fruits in Kyiv on December 2, 2021.

To begin with, what is Lidl and why should other networks fear such a competitor?

1. The largest food retailer in Europe and the fifth largest in the world, after four US chains. The Schwarz Group, which owns the Lidl supermarket chain and Kaufland hypermarkets with an annual turnover of 125 billion EUR ($145 billion) and almost 12.9 thousand stores in 33 countries, is the most important player in the market. The turnover of the Schwarz Group supermarket chains almost corresponds to the GDP of Ukraine ($156 billion in 2020)!
2. In terms of turnover, Schwarz Group is several times superior to international supermarket chains operating in Ukraine. For example, Metro AG, which owns the Metro Cash & Carry supermarket chain in Ukraine, has approximately 3 times less turnover than Schwarz Group, and Auchan almost 4 times less.
3. The fastest growing supermarket chain in Europe – Lidl was not the leader in food retail in Europe 8 years ago, giving place to Carrefour, Tesco and Aldi. Considering the current huge gap with competitors – 50% larger turnover than Aldi, the second in the ranking, one can understand how impressive growth rates Lidl has had in recent years!
4. Ukraine is the first former CIS country where Lidl enters, but not the first where Schwarz Group operates. The Kaufland supermarket chain shortly after entering the Moldovan retail market took the lead in the comprehensive assessment of fruit and vegetable departments and greatly raised the bar for the quality and range of fruit and vegetables.
5. The business model is a tough discounter. Kaufland is usually a premium supermarket, but Lidl is the opposite. We can say that Lidl is a trendsetter in this segment. It is distinguished by extremely low, sometimes incredibly low prices, a minimum of staff, placement of goods on shelves in original packaging from the supplier in order to save the consumer’s money, a limited assortment, an emphasis on its own network brands (Private Label), but the presence of leading independent brands, unlike other discounters.
6. Private Label – Lidl has an extensive system of partners-producers of goods for the chain under its own (chain) trademarks in different countries. In addition, the company has its own powerful production facility, Schwarz Produktion. These products are the most affordable in each category, as a rule.
7. In Poland, Lidl operates a chain of more than 700 stores with a turnover of over $6 billion, being the leader in food retail in Poland. For comparison, the turnover of ATB, the leader of the Ukrainian retail, is approximately the same in 2020 as the turnover of Lidl in Poland. At the same time, ATB has much more stores – about 1200. However, the average size of a Lidl store in Poland, according to our estimates, is 35-50% larger than that of ATB in Ukraine.
8. Lidl officially announced its entry into the markets of Bosnia and Herzegovina and Estonia in 2022. Let us remind you that entering the Ukrainian market has not yet been officially announced.
9. Lidl Plus is an interesting and effective loyalty system that goes far beyond traditional discounts and cashbacks. Consumers can use the smartphone app around the world.
10. The scandals and litigation involving Lidl mainly concerned complaints about working conditions and low wages at Lidl’s suppliers and in the stores of the chain.

How does Lidl sell fresh vegetables and fruits?

As in any other segment, Lidl focuses on ultra-low prices for vegetables and fruits. The challenge for a retailer is always to be the first in fruit and vegetable prices.

Nonetheless, the requirements for the quality and safety of fruits and vegetables in Lidl are very high. The chain may not offer premium-quality products, but it inspects the suppliers of fruits and vegetables very rigidly in terms of complying with the safety and quality requirements. The supplier, on the other hand, knows that if Lidl’s requirements are met, the chain will be able to offer huge development prospects and large volumes of product sales.

Lidl’s range of vegetables and fruits is limited, but the chain has recently regularly prioritized this segment of goods, given the global trend towards healthy food choice. For example, in the UK, the chain plans to increase the share of healthy foods to 85% of total sales and increase sales of fruits and vegetables by 35% by 2026, Fruitnet reported.

The focus on local vegetables and fruits is also an important element of the fruit and vegetable trading strategy for Lidl. Trade in local products, as we regularly emphasize in the fruit and vegetable audits of EastFruit retail chains, is beneficial for any chain. This allows to offer fresher, and therefore tastier fruit and vegetables, reduce transport costs, emphasizing the concern for the environment, and, at the same time, get a higher price, since consumers in most countries prefer local products to imports.

However, the availability of high-quality and safe products in the country at a competitive price should be taken into account. Otherwise, Lidl’s global direct procurement and direct import system will find alternatives.

The quality of the produce department and the quality of services in Lidl supermarket chains usually correspond to the discounter format. The chain is trying to minimize staff costs, so you shouldn’t expect a lot of workers in the store. Lidl supermarkets are also unlikely to amaze by merchandising and beautiful display, as products are usually sold in the same packaging they were supplied by producers or wholesalers of fruits and vegetables. Nevertheless, Lidl’s information content, as a rule, is at a fairly high level, as well as the convenience of shopping.

Lidl stores normally have an area of ​​about 1 thousand square meters, but there are also stores of ​​about 2 thousand square meters.

Lidl, taking into account the general trend towards a healthy diet, also pays great attention to the sale of organic vegetables and fruits and has its own line of organic products. This, undoubtedly, can attract not only economy-oriented shoppers to the store, but also the premium segment.

Since Lidl was a large wholesale company for a long time before entering the retail segment of the business, it knows well how to minimize the logistics costs for the purchase of fruits and vegetables. Accordingly, the supermarket chain is likely to launch a distribution center (DC) at the earliest stage of market entry. Without this, it will not be possible to implement the strategy of ultra-low prices. Naturally, the chain will strive to work directly with producers who have the necessary capabilities to ensure year-round supplies of fruits and vegetables.

As Lidl is trying not to hire many employees in sales areas, the chain will most likely require suppliers of fruits and vegetables to supply products with the maximum level of “packaging”. In other words, you probably won’t find bulk potatoes, carrots or other root vegetables in Lidl.

What does the possible entry of Lidl into the market mean for Ukrainian farmers, vegetable and potato growers?

First of all, these are new opportunities. Competition is always good, and Lidl will become a new powerful distribution channel. The partnership with Lidl will help producers create long-term business development strategies, taking into account the best international practices. After all, if you can meet the requirements of Lidl in Ukraine, you will most likely be able to supply products to any supermarket in the world.

Here is the second advantage – the opportunity to enter the international market, as well as through Lidl. Lidl’s global procurement strategy provides this opportunity for the most efficient and competitive suppliers. Therefore, the network can become a gateway to the markets of the EU and other countries in the world.

The third advantage is the general increase in the quality and safety of fruits and vegetables, which usually takes place after such a powerful international player enters the market. For instance, Lidl in Poland requires mandatory GlobalGAP certification from all vegetable and fruit suppliers, and the requirements for pesticide residues in the chain are much stricter than the EU standards.

While producers dislike and actively oppose increased requirements to their products, improved quality always leads to higher sales and revenue. Of course, this will require investment in the infrastructure for refinement, and many will even have to change approaches to production and crop protection, if they want to take advantage of the opportunities provided by Lidl.

The fourth advantage is the reduction of the risk of non-payment by the chain. Unfortunately, many suppliers of vegetables and fruits in Ukraine have not been able to receive payments for the supplied products due to bankruptcies of chains, or they often received payments delayed up to six months or more. In the case of the leader of European retail, such risk will be minor.

In general, any opportunity will require improvements from producers. Without a doubt, these are changes for the better and producers need to start preparing for them now.

What does Lidl’s possible entry into the market mean for fruit and vegetable consumers?

It is quite clear – competition means lower prices. An average Ukrainian consumer is not among the richest in the world, so he will only be glad to save money.

The second important advantage for the Ukrainian consumer is Lidl’s increased requirements for residues of plant protection products in vegetables and fruits, which we mentioned above. This will provide additional safety guarantees to Ukrainian consumers, and the chain will benefit from a high level of loyalty.

The third advantage is higher requirements for the quality of fruit and vegetable products. This can be very important for those who are tired of dirty potatoes, onions, carrots, beets in supermarket stores.

The fourth is the availability of organic products in the chain’s stores. However, it is not yet entirely clear how widely the organic segment will be represented in the fruit and vegetable department of Lidl in Ukraine.

The fifth is the promotion of local products that are tastier and fresher. Lidl will create opportunities to develop fruit and vegetable production in Ukraine and promote local products as they do in other countries.

Perhaps, a reduced assortment can be a potential drawback of the chain. However, the “reduced assortment” in the EU market may be quite sufficient for the Ukrainian market, as the average supermarket chain in Kyiv has about 100-120 positions of vegetables and fruits, the leaders – 200-260 positions, and ATB – about 50 positions.

What does Lidl’s entry into the market mean for the retail business, and how will it take place?

Since the former manager of the chain in Poland has been appointed as the head of the Lidl chain in Ukraine, it is obvious that Ukrainian chains should study the experience of the neighboring country.

Will Lidl buy any of the Ukrainian supermarket chains or will it create its own supermarket chain in Ukraine from scratch? It would be logical to assume that the ATB supermarket chain is the most suitable for the Lidl chain in terms of its format, and its purchase can provide the rapid gaining of leadership.

However, the experience of other countries shows that Lidl prefers to create its own chain, rather than enter the market through the purchase of competitors. Perhaps this is due to the format of the chain and high requirements for efficiency created by standardizing stores. Nevertheless, it is this option of entering the Ukrainian market that seems very likely. This will become a significant impetus to the development of the commercial real estate market in Ukraine, as experience has proven that the chain will strive to take the leading positions in the country within 3-5 years.

Where will Lidl find its Ukrainian competitors, where will it be inferior to them, and what position would the chain take in our audit today if it had already operated on the market?

As a rule, Lidl is a leader in terms of prices, but it will not be easy to do this in Ukraine. Particularly, it will be more difficult than in Poland. This is due to the fact that, according to EastFruit estimates, only 26% of all vegetables and fruits are sold through supermarket chains, and 74% of trade turnover is sales in markets, stands and street trading. If we take into account the consumption of self-grown vegetables and fruits in value terms, the chains control only 16.5% of the consumption of vegetables and fruits in value terms.

Obviously, the Lidl chain will be able to count on leadership in prices in the segment of imported vegetables and fruits at the first stage. It may take some time to become the leader in local products.

In terms of assortment, the chain is most likely to be somewhere in the middle, but it is likely to take leading positions in terms of quality. As for the quality of the department, we expect the chain to have the same positions as in the assortment – in the upper middle of the rating of the country’s supermarkets.

Thus, we assume that Lidl, according to a comprehensive assessment of the fruit and vegetable departments, will enter the top 3 of Ukraine. The chain will most likely offer the greatest competition to such supermarket chains in Ukraine as ATB, Novus, Silpo and Auchan.

Of course, only the ATB chain can be considered a direct competitor of Lidl, however, the German retailer will put pressure on Auchan and all other chains in terms of prices. In terms of product quality, Lidl will compete directly with Novus, especially Novus Express, offering significantly lower prices. Silpo, on the other hand, has multi-format stores, and their large part are very similar in format to discounters. It is this segment of the chain that will suffer the most from the potential expansion of Lidl in the Ukrainian market.

Given the long stagnation at the very end of the EastFruit rating of the Ecomarket and Velyka Kishenya chains, Lidl’s entry into the Ukrainian market may accelerate their exit from the retail business, because their formats will directly intersect with a more powerful international competitor.

Conclusions

Lidl’s entry into the Ukrainian market may not take place, since the chain has long had offices in some countries with no Lidl stores. However, these are usually countries with large orders for the production of goods for sale in this supermarket chain, and Ukraine hardly fits this criterion.

Most likely, Lidl’s entry into the Ukrainian market will take a lot of time. Therefore, we cannot say for sure that there will be at least one store of the chain in the country by the end of 2022.

Lidl’s entry into the Ukrainian market will have a powerful impact on both the retail market and the fruit and vegetable market. The impact will be predominantly positive, as it will open up new opportunities for business development and even export expansion for the most progressive producers and provide access to better and safer products at a fair competitive price for consumers.

The entry of such a powerful player into the country’s market is also positive for the image and investment attractiveness of Ukraine, as Lidl will create new investment opportunities in other sectors of the country’s food and non-food businesses.

“The EastFruit team is looking forward to including Lidl in our periodic retail audits of supermarket horticultural departments, which we have been doing for nearly 15 years. We see how the development of modern fruit and vegetable retail is changing the fruit and vegetable business of the countries of our region, creating new opportunities for all market participants ready to face the challenges of modern times and develop,” says Andriy Yarmak, Economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO), managing a joint FAO/EBRD project to develop the fruit and vegetable trade in Ukraine, Moldova, Georgia, Uzbekistan and Tajikistan.

We invite everyone to the first international conference “Retail Forum – 2021” on December 2, 2021 in Kyiv. As part of the event, EastFruit experts and representatives of the Ukrainian Horticultural Association will present a unique study of the country’s fruit and vegetable retail. The study includes the top 20 best-selling vegetables and fruits, seasonality of sales, specific weight of vegetables and fruits in the turnover of chains, current turnovers of fruits and vegetables in Ukrainian retail, and, of course, opportunities for the development of this segment.

Registration of participants will soon be available on the FruitInform website. For participation you can contact the project staff:
+380 96 5836323 – Yevhen Kuzin, eugenekuzin@gmail.com

+380 96 4337857 – Olexandr Khorev, halex.khorev@gmail.com

+380 96 1319287 – Olexandra Manko, sashchaa@gmail.com

Сообщение Lidl to make a revolution in Ukraine’s retail and produce sectors: detailed analysis by EastFruit появились сначала на EastFruit.

According to the suppliers of vegetables and fruits of one of the largest supermarket chains in Ukraine “Silpo”, which is part of the Fozzy Group, the entire team responsible for the purchase of vegetables and fruits and management of the fruit and vegetable departments of the chain, was fired.

Obviously, the dismissal was unexpected, because more than a week had passed since the fruit and vegetable management was removed from work, and there is still no new team formed. Therefore, the management of the department is temporarily assigned to the management of other departments, completely unfamiliar with the specifics of the fruit and vegetable trade. Accordingly, this creates huge difficulties for suppliers and may affect the position of Silpo in the rating of supermarket chains in Ukraine. After all, it is the produce department that is decisive in estimating the retail business of any chain, as we have repeatedly proved by EastFruit audits in different countries.

By the way, EastFruit audits are also a good indicator for suppliers of fruits and vegetables. The chains at the bottom of the overall rating or those classified as “undesirable” often experience difficulties in timely payment for vegetables and fruits delivered to supermarkets. Suppliers of the Silpo chain have constantly complained to us about the delays in payment from the chain in recent years. The main competitor of Fozzy Group in the retail market of Ukraine, on the other hand, received positive reviews. This is an essential factor influencing the timely provision of high-quality and affordable products to supermarkets.

Why was the Silpo fruit and vegetable team dismissed? There is no reliable information on this, so we will rely on our own data from EastFruit retail audits. In fact, the Silpo chain has recently made some progress in fruit and vegetable ratings, although before that its supermarkets were for a long time at the bottom of the list long a of our ratings in Kyiv and other cities where the audit was carried out.

In July 2021, the Silpo chain had progress in terms of the most important criterion, its most problematic one in recent years – the price level for vegetables and fruits. However, it continued to lag behind competitors in terms of assortment, since there were stores of various formats under the Silpo brand: both large, arguably premium stores, and very small ones, with a small assortment and often low-quality products, similar to the convenience or discount stores. This blurred the overall performance of the chain in the ratings.

It should be noted that in addition to Silpo, the Fozzy Group includes supermarket chains Fozzy, Le Silpo, Fora, Thrash! They have different formats – for instance, Le Silpo is often found among the leaders of our rating of fruit and vegetable departments. Fora, on the other hand, is almost always one of the supermarkets at the bottom of the list, not to mention the chain with the eloquent name Thrash!.

According to the EastFruit analytical team’s estimates, made by indirect methods, the turnover of all Fozzy Group supermarket chains for fruits and vegetables in 2020 could be from 7.2 to 7.6 billion UAH, which corresponded to $260-280 million. This made the chain one of the largest sales markets for fresh fruits and vegetables in Ukraine. By the way, this approximately corresponded to the exports of all vegetables and fruits from Ukraine in a year!

That is why the management dismissal of the fruit and vegetable department of the Silpo supermarket chain and other chains of the Fozzy Group has a serious direct impact on the Ukrainian market for fresh vegetables, fruits and berries.

Сообщение Ukrainian supermarket chain “Silpo” fired the management team of fruit and vegetable departments появились сначала на EastFruit.

On February 18, 2021, the Antimonopoly Committee of Ukraine granted permission to Silpo-Food LLC (Fozzy Group) to acquire control over the assets of the Furshet Group. Both companies retail primarily in consumer goods.

The exit of the Furshet supermarket chain from the business was predicted by the EastFruit retail audit. Once again, this confirms that to assess the state of business of a supermarket chain, it is enough to conduct a high-quality audit and benchmarking of the produce department, which is absolutely key to the success of the entire food retail business.

“Over the past two years, our audits have successfully predicted the exit from the retail business of supermarket chains in Moldova and Ukraine. In the case of Furshet, it is more proof of the objectivity and high professional level of our audits since Furshet has been a stable outsider of ratings in Kyiv for several years,” says Andriy Yarmak, an economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO).

It is interesting to note that the Silpo chain itself has recently demonstrated a stable deterioration in the results of audits in Kyiv and other cities of Ukraine. In November 2020 in Kyiv, Silpo showed the third-worst result according to the complex assessment of fruit and vegetable departments and for the first time lost even to Furshet! The second from last place was taken by another chain of the Fozzy group – Fora. Things are not good at Silpo in its native city Dnipro where it also took the penultimate place coming close to last, which is firmly entrenched in another supermarket chain of Fozzy Group with the eloquent name “Trash.” In the near future, it remains to be seen that the chain will be able to improve its performance since a low-quality fruit and vegetable department repels consumers who will then choose other supermarkets and the choice in Ukraine is now very wide.

It should be noted that Furshet also has a retail business in Moldova. Owned by the same owner of the Ukrainian Furshet, the “Fourchette” supermarket chain is also not very successful. According to the results of the EastFruit audit in November 2020, it took the penultimate place in the overall rating of Chisinau, having lost five positions in a year. No statements have been made about whether Silpo is buying the Furshet retail business in Moldova.

Сообщение EastFruit retail audits predicted fate of entire chain again – Silpo buys out Furshet supermarkets появились сначала на EastFruit.

According to EastFruit analysts, 2020 has become a real breakthrough for Uzbekistan in the development of modern grocery formats, including the fruit and vegetable trade. Our preliminary estimates for 2020 show that the number of supermarkets and self-service stores of various formats selling vegetables and fruits in Uzbekistan has at least doubled. This, in turn, has a great impact not only on the horticulture trade but also on their production and distribution.

The Makro supermarket chain is one of the clear leaders in the retail trade of Uzbekistan in terms of turnover. Chief Executive Officer of Makro Roman Sayfulin announced that on December 28, 2020, Makro has already successfully opened their 94th supermarket store. It opened in Medgorodok and this was the last opening of a new store for 2020. According to Mr. Sayfulin, several openings had to be postponed until early next year so, most likely, in the coming months in Uzbekistan, the number of stores under the Makro brand will reach 100 supermarkets!

Read also: Bazaars to supermarkets in Uzbekistan – one chain opening 50 new stores by end of January!

To understand the pace of development for the Makro chain, Roman Sayfulin said, “We opened 37 stores from September to December. I am proud to work on such a team!” Within just four months, the Makro team managed to increase the number of stores by 65%!

“It is pleasant to see such an impressive growth of market competition for supermarkets in Uzbekistan. It will create new opportunities for growth in quality and safety standards for local vegetables and fruits and the optimization of sales channels. The high rates of development of the Makro network indicate a desire to retain market share, especially with the entries in the Uzbek market of the first international supermarket chain Carrefour, EBRD’s investments in the local chain Korzinka.uz, announcements of entry by the largest retail operator of Kazakhstan – supermarket chain Magnum Cash & Carry, and plans by the brand new Baraka Market chain to open 50 stores by the end of January 2021,” says Andriy Yarmak, an economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO).

Let’s see how Makro is doing with quality, assortment, and prices according to the retail audit of the fruit and vegetable departments of Tashkent supermarkets by the EastFruit team. Immediately, we note that Makro operates under two different brands: Makro and Makro Express 24/7, which is very good because many networks make the mistake of co-branded networks of different formats. Therefore, we will analyze separately each of the two brands.

Makro was the leader in Tashkent in terms of the average range of fresh vegetables and fruits on the chain’s shelves, ahead of Korzinka. However, the auditors had complaints about the quality of the products. According to this indicator, Makro was inferior to Korzinka and the relatively small Green Apple chain. Obviously, this was a consequence of the rapid expansion, in which many supermarkets have difficulty maintaining the proper quality of fruits and vegetables, especially if they have such a wide range. Interestingly, Makro Express 24/7, having a very narrow assortment (similar to the Havas chain), had the same quality problems as large Makro stores.

Also, Makro was inferior to the Green Apple and Korzinka in terms of a comprehensive assessment of the quality of the produce department. Nevertheless, the difference between the chains was minimal and the auditors noted that Makro had some progress in information content, which is always well received by consumers and contributes to sales growth. With such a wide assortment, Makro can swing at the overall leadership in the ranking, subject to improved merchandising of vegetables and fruits and more thorough quality control of products on the shelves. Makro Express 24/7 took the penultimate place in the quality rating of fruit and vegetable departments, which is absolutely not necessary for small-format stores. It shows that merchandising and information content as well as service and convenience can be provided even in a small store.

Where Makro and Makro Express 24/7 had their biggest problem was the price level. By this indicator, they were far more inferior to all other supermarket chains in Tashkent. This would be understandable if the quality of the product and department were significantly higher, then the chain could qualify for the premium segment. In the meantime, taking into account all factors, the Makro Express 24/7 network took the last place in Tashkent according to the complex assessment of the produce department. Makro was in third, behind the Green Apple and Kozinka chains and ahead of the Andalus and Havas networks.

“It is obvious that with such a significant number of stores that the Makro chain has, it can significantly reduce the cost of purchasing fruits and vegetables and dramatically improve its quality by creating its own distribution centre (DC) or even several DCs. This will allow them to purchase large volumes of products at one time, better quality control, manage stocks more efficiently, reduce logistics costs, and offer more competitive prices to both suppliers and consumers,” says Andriy Yarmak from FAO.

He also explains why the produce department is of key importance to the entire retail business of the supermarket chain: “Numerous consumer studies show that they prefer to buy products from supermarkets that offer a wide range of high-quality fruits and vegetables. In addition, in stores with a high-quality produce department, the average checkout is usually also much higher as is the frequency of visits to such a store by the same customer. However, even for rich countries, the competitive price level on the network is critically important, and for a country like Uzbekistan, where bazaars are part of the culture and the income level of the population is relatively low, ensuring a competitive price level without compromising quality should be a priority. The audit results of supermarket fruit and vegetable departments, which we have been conducting for more than 10 years, have predicted the fate of the entire chain many times – those stores that occupy the last places in the rating often go bankrupt or are sold to more successful competitors.”

The Makro supermarket chain opened its first store in Uzbekistan in 2010. Now, the chain has stores in the following cities of Uzbekistan: Tashkent, Samarkand, Karshi, Navoi, and Bukhara as well as in several cities of the Fergana Valley. The Makro network also actively develops online food retailing and offers online ordering and home delivery services. In addition, delivery will be free when ordering products worth more than 300,000 soums (about $29). For smaller orders, the cost of delivery will also be very low at 12,000 soums, or about $1.15.

Сообщение Supermarket boom continues in Uzbekistan – Makro opened 37 stores in 4 months! появились сначала на EastFruit.