Lidl crazy

Much has been written about a video which had been placed on the YouTube showing Maltese consumers, on the 27^th April, ‘storming’ the Lidl store at Safi to get a bargain.

Yet in spite of this, very few commentators pointed to the real issue. Some said that Maltese consumers recognise a bargain when they see one. Others commented that our behaviour showed the worst of the Maltese. But few pointed to the real issue - the lack of competition in the local retail market.

Why are many Maltese Lidl crazy? Simply because the prices for which many products are offered compare very favourably to the prices set by the rest of the local market structure.

I’m pointing to the local market structure. The reason is simple. In overseas market structures the prices that Lidl is offering are not that exceptional. Other traders, in other European countries, are offering bargains similar to Lidl. Thus Lidl, for overseas consumers, is not the exception but the rule.

To make matters worse for the local consumers, the prices offered by Lidl are such that they are even attractive to small shopkeepers – easily recognizable by the large amounts of the same product they buy from Lidl. Again the prices offered by Lidl to the local consumers are better than the ones offered to shopkeepers by the local importers. Thus the competition for Lidl special offers is quite high. The products offered become scarcer by the fact that the best of the crop is sidetracked by the people working there – both shop assistants and security people.

But Lidl offers two important aspects - aspects that are virtually non-existent in the rest of the market but which need to be emulated by the other competitors to have a truly competitive market. The first aspect is the way prices are shown. Lidl, both in its advertising and shelf prices, gives two prices for products which are quantified either by volume or weight. In such cases, the two prices given are the price of the product and its price either per litre or per kilogram. The latter price helps consumers to compare the prices of similar products.

This is a great help for discerning consumers as the weight or volume of the same product differs according to different producers. In cases like pasta, where the products offered are in standard sizes, the consumer can easily compare prices. But in other cases, such as meat or drinks the consumer is confronted by different weights or volumes. In such cases it is virtually impossible for the consumer to compare prices, there and then.

The second aspect is that a consumer can return a product within a period of thirty days and a full refund is given. This is something that consumers who had travelled abroad always yearn to have. Unfortunately, it is disappointingly absent in the local market.

The above aspects are characteristics of intense competition – aspects that are missing from the rest of the local market. The unfortunate thing is that the Lidl aspect constitutes only, up till now, a very small part of the market.

The fortunate side of the coin for consumers is that the local market at present is suffering from a downturn and this coupled by the competition that Lidl offers is bringing about a change. Retailers who want to survive are already changing their strategy. Instead of accepting the price set by the main local agents, they are importing certain products themselves with the result that the price difference between their prices and Lidl’s has contracted considerably.

But in order to understand the full significance of the above to the local consumer, one must look at the local inflation. Inflation or cost of living, as is more generally known, reflects changes in prices. The following graph (NSO, RPI April 09 publication) shows how inflation varied during the last 3 years. One would note that inflation fell drastically when Malta had to meet the Maastricht criteria to join the Euro. No wonder there have been continuous cries to set up an agency similar to the one then operational!

Another table (April 09 RPI) published by the NSO shows the changes in the prices by different product groups.

If one were to disregard the exorbitant increases in Water, Electricity, Gas and Fuels group, the table shows that the largest % increases have been in the Food and the Beverages and Tobacco groups – products where Lidl’s pricing compares very favourably with the rest of the market.

No wonder the Maltese consumers are Lidl crazy! They yearn to see more competition in the local retail market!

Published in Maltastar.com on 3 June 2009.

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