The rapid expansion of German discount grocery retailers here, while traditional supermarkets battle with planning regulations and caps on store sizes in their efforts to open new locations, is unparalleled in the grocery market to date and has left many industry analysts dazed.
Alarm bells have started ringing among conventional retailers as they realise the growing market share of the discounters, whose sights are now squarely set on the lucrative Dublin market. By early next year Lidl and Aldi could have 45 stores between them.
November marks two years since the first German discount grocery retailer, Aldi, began trading on Parnell Street on Dublin's northside. Queues of shoppers greeted Aldi staff on the opening day and a second store was quickly opened in Ballincollig, Co Cork.
Since then, the international chain has opened six more stores throughout the State, and a further one is scheduled to begin trading before Christmas. The discount chain was less than coy about its expansion plans: Aldi announced it would be opening six new stores in Ireland in the first year and, in fact, it opened eight. The five-year programme envisages between 30 and 35 stores covering the map of Ireland, with that number projected to rise to between 60 or 70 within 10 years.
But even more zealous has been its main domestic and international rival, the Lidl chain, which has so far exceeded Aldi's gain in the annual £5 billion Irish grocery market. It is estimated that the discount multiples now have in excess of 2 per cent of the market, which will rise as they increase their presence in the Dublin area.
In the two years since its arrival here, Lidl has 23 stores open and trading, with a further 10 on site. Those 23 stores translate into 240,000 sq ft of net retail space.
To date Lidl has received planning for 340,000 sq ft, the equivalent of 10 capped supermarkets. Recent regulations introduced saw the size of supermarkets restricted to 37,000 sq ft in the Dublin area and 32,000 sq ft in all other areas. In the same period no other supermarket chain submitted planning proposals for even half that number of stores.
Overall, Lidl lodged 48 planning applications in the last two years. Of that number, 32 stores are open or currently being developed; nine were refused, two were withdrawn and five remain undecided.
To put that in context, in the last three years Tesco Ireland has built approximately 235,000 sq ft of new retail space, including four replacement stores totalling 70,000 sq ft. Superquinn has built 120,000 sq ft of new retail space and Dunnes Stores has built around 235,000 sq ft.
For the conventional supermarket chains, the planning applications system is laborious. Seeking planning permission for a new supermarket in an out-of-town location is often futile, and can take years to secure, often involving many objections from local traders as well as national organisations like RGDATA, the retail grocers' organisation. According to independent town planner Auveen Byrne, the new Retail Planning Guidelines, introduced at the beginning of this year, not only capped store size but also tightened restrictions on location.
However, it appears that the discount retail chains have been able to " slip under the planning radar screen", as one industry source put it. The frustrating delays of the State's planning system have certainly not impacted on Lidl's rapid expansion. Securing permission within two years for 32 small supermarket stores, of which 23 are already trading, suggests they have found a way around the justifiable opposition to out-of-town trading locations.
One obvious explanation is that the smaller size of the shops has allowed them to sail through the planning process. According to a recent An Bord Pleanβla report, granting permission for a new Aldi store in a retail park in Coolock, the multiple is termed as a neighbourhood store. "Aldi stores are not main competitors with large superstores or with smaller specialised shops such as greengrocers, butchers, fishmongers etcetera ... The proposed development would improve choice and competition inthe retail sector," said the report. However, the store is to be located in the Northside Retail Park, not in a village setting alongside some of the other retailers mentioned in the report.
The majority of Lidl's stores average between 10,000 to 17,000 sq ft in size - around the same size as the average Supervalu store. Some are greenfield sites on the edge-of-towns, some stand-alone sites out-of-town while others are small retail centres in towns. Out-of and edge-of-town locations are not favoured under the Retail Planning Guidelines yet this guideline does not seem to have been applied too rigorously in the case of Lidl. Planners want established names like Dunnes Stores, Tesco, Superquinn and Supervalu as anchor tenants in town centres, not as stand-alone operators in out-of-town developments. Similarly, developers looking for high profile anchor stores to pull in the shoppers invariably look for one of the long established chains rather than Lidl or Aldi.
Lidl's rapid expansion has been made easy by the absence of any serious objections to their new stores. Amazingly, RGDATA, usually quite vociferous in objecting to any large new supermarket because of fears that they might have a negative impact on local traders, has not lodged a single objections to the expansion of the Lidl chain.
"We believe there is a market niche for the discount retailers, but would not feel threatened by their expansion as research shows that Irish consumers are too brand conscious to buy own brand products. We object to larger supermarkets as we don't want to end up in a similar situation as the UK where 42 per cent of town centres are without small retailers. We take a social view that big stores are not good for society," explained Ailish Forde, director of RGDATA in response.
"There's no doubt that Lidl and Aldi have managed to open new stores and achieve planning permission very quickly. Perhaps the retail market hasn't realised yet the level of market share which these groups will attain in a very short space of time," commented Fintan Tierney of Lambert Smith Hampton.
Targeting rural and lower socio-economic profile areas appears to be the strategy adopted by both no-frills retailers. Lidl, in particular, has concentrated on cementing its presence in Munster. Youghal, Killarney, Shannon, Limerick, Clonmel, Tipperary, Nenagh, Roscrea and Fermoy all have stores, most located at edge-of-town sites. Aldi has tended to focus more on Dublin, Galway and the midlands. Stores are standard in size and format, and their bland appearances reflects the no frills motto.
Lidl will be an anchor in a new street being developed in Tullamore. The company paid £2.5 million for a 17,000 sq ft stand-alone premises among four other retail and commercial blocks which have not yet been let.
Smaller in size and range than conventional supermarkets, Aldi stores average around 8,000 sq ft and only stock a limited range of products, around 600 items as against 850 in Lidl. An average mid-size Irish supermarket has 10,000-plus product lines. In addition to the core range there is a constant flow of one off "Special Buys" which include electrical items, gardening, household goods and textiles.
At present the two chains have a market share of 2 per cent, but if as predicted, Aldi and Lidl have 45 stores between them by next year then the projected share of the grocery market will rise to around 5 per cent. Five per cent of an annual £5 billion amounts to £250 million. This would have a big impact on suppliers in the Republic as neither chain sources much of its products in Ireland. Non-perishables, household supplies, dairy products, frozen foods and wine make up the limited range of goods stocked. Over 90 per cent of these goods are own brand sourced from Europe as both are major international multiples.
Aldi has some 5,000 stores operating in 11 countries including Germany, the Netherlands, Denmark, France, the UK and the United States, with a strong foothold in the UK, where it has a network of 250 stores, since 1990. Most stores across its global network stock a similar range of products, all sourced from central suppliers rather than local ones. count supermarkets.
