Lidl Set to Re-enter Lithuania

In 2002, German discount chain Lidl acquired land with plans to begin operations in Lithuania.
Five years later, the company announced it was pulling out of the Baltics — without having opened a single store — due to unfavorable market conditions and concerns about the potential for future growth.

In February, the Lithuanian press reported that Lidl is considering re-entering the market with a new strategy of operating stores in the country’s largest cities and in every town with a population greater than 20,000. The retailer has already launched a search for employees and has started planning stores with an average size of 14,000 sq. ft.

The top five grocers in Lithuania account for roughly half of the national grocery market. This is thanks to the overwhelming dominance of domestic market leader Maxima, which alone captures around 23 percent of the grocery trade. According to Planet Retail’s database, the top five players (Maxima, Palink-owned IKI, Norfos Mazmena, Ahold’s Rimi Lithuania and Aibe) controlled a combined 46.9 percent share in 2010 — one of the highest shares in Central and Eastern Europe, and nearly twice the share (25.3 percent) enjoyed by the top five grocers in Poland.

Maxima has been the top player in Lithuania, other Baltic states and Bulgaria, markets Lidl has recently entered. Lidl could provide stiff competition to this Baltic giant, and a lot will depend on Maxima’s ability to fend off the German discounter.

There is still a significant difference between Lithuania’s per capita consumption and that of Western European countries. Even among the new E.U. nations, Lithuania is near the low end of the per-capita consumer spending spectrum. Low-income consumers stand to gain access to a wider range of affordable products, although to what extent will largely depend on the pricing strategy Lidl adopts.

Challenges ahead
Cultural differences across Central and Eastern Europe mean that the impact of foreign retailers varies by country, and Lithuania is no exception. There have been successful foreign entries to the market over the years, including Ahold and Finland-based DIY store operator Kesko. Brand awareness is also important for Lithuanian customers. The challenge for Lidl will be trying to re-enter a market that is far more developed than it was a decade ago when other foreign retailers established their presence.

Lithuania represents a market with great potential for the discount retail format, since the concept remains underdeveloped and the retail scene is dominated by supermarket-orientated retailers. Much will depend on how aggressively local players compete, but considering Lidl’s international success, Lithuania is a risk worth taking.

In addition, a Lithuania entry would build a solid foundation for potential launches in other Baltic states like Latvia and Estonia. The Latvian market already is dominated by foreign players, so it is possible that there is greater scope for growth there than in Lithuania. Estonia’s market is dominated by local player ETK and, although it is part of the Baltics geographically, it has much closer ties with Scandinavian countries. Still, while Estonia may respond differently to a Lidl entry, in general there is great potential for discounters across the Baltics and, depending on Lidl’s success in Lithuania, this should be exploited.