Lidl’s record-high market share in recent months has presented a new challenge to rival retailers and suppliers to change to keep up, according to an industry expert.
The discounter’s surge has been attributed to its success in attracting over half a million new price-sensitive shoppers amid high inflation and supported by ongoing store refurbishments and its Lidl Plus loyalty scheme. But, says Amit Malhan, Managing Director of The Category Management Company, the shift not only reflects growing consumer price sensitivity, but also intensified competition in the UK grocery sector.
So, what does this mean for both other retailers and suppliers in the sector?
“First, it points to increased competitive pressure on the major retailers. As Lidl expands its customer base, Tesco, Sainsbury’s, Asda, and others are going to face intensified pressure,” said Malhan.
“Morrisons, which is close to being overtaken by Lidl, may need to respond with sharper pricing, stronger promotions, or loyalty incentives to regain market share, whilst Tesco and Sainsbury’s could see greater churn among price-sensitive shoppers, even though they currently have more diverse offerings.”
Malhan noted that one of the fundamental challenges is for Asda. Caught in the middle between the High Street discounters and the market leaders, their forecourt strategy is sound and will pay dividends in the long term, a great showcase for the larger store formats for the uninitiated and potential Asda shopper. As for the short term, he says this may be trickier and worrying, as it could trigger (another) race to the bottom.
“But for all the retailers, the holy grail is to build volume, value and long-term loyalty,” continued Malhan.
“Some are doing this rather well through volume, and it is probably the hardest nut to crack. It also accelerates the price war. Lidl’s aggressive pricing strategy is forcing the other retailers to revisit their value propositions. Competitors may increase investment in own-label ranges to hold onto cost-conscious shoppers.”
This in turn, noted Malhan, applies pressure on suppliers. “Retailers will likely demand lower prices from suppliers to stay competitive, which could squeeze margins across the supply chain,” he said.
“Smaller suppliers may struggle to cope with reduced margins, while larger suppliers could consolidate their power if they can absorb the cost pressures. Lidl’s growing bargaining power may also allow it to negotiate better terms from suppliers, influencing pricing across the sector.”
To unlock their full potential in Lidl and other retailers beyond, Malhan believes suppliers should carefully balance short-term tactical wins with long-term strategic initiatives. “Tactical activities such as optimising promotional mechanics, executing range formats, or activating seasonal assortments can deliver immediate sales uplifts and strengthen in-store presence,” he said.
“However, these should be aligned with strategic category leadership growth drivers, such as innovation pipelines and shopper insight-led propositions, that build sustainable advantage over time. By combining quick wins with forward-looking investment, suppliers can not only maximise growth within Lidl but also create scalable models that accelerate performance across other retail partners.”
Meanwhile, the industry expert believes that there will likely be a continuing shift in customer loyalty. “Loyalty schemes, like Lidl Plus versus Nectar, Clubcard, and Asda Rewards, will become more central to competition. As a result, customers may increasingly shop across multiple retailers, hunting for the best deals instead of sticking to one supermarket,” Malhan said.
He noted that this requires a strategic response from Lidl’s competitors and their suppliers of branded and private label ranges alike: “Supermarkets may double down on differentiation. Premium ranges like ‘Taste the Difference’ and ‘Tesco Finest’ may retain middle-income shoppers less driven by price, whilst convenience offerings through smaller local stores and rapid delivery partnerships could continue to grow. We are also likely to witness greater investment in store refurbishments and digital channels to match Lidl’s growth momentum.”
Malhan concludes that Lidl’s market share gains could mean a tougher environment for both retailers and suppliers with increasingly competitive margins. “On the other hand, value-added growth and shopper loyalty can be achieved through an amplified emphasis on the development and implementation of insight-led strategic plans,” he said.
