The Scarlet Pimpernel: Lidl’s secret society

A bigger worry for other players in the grocery sector is the ‘consumer’s champion’ tag Lidl has earned from the National Consumer Agency

Social and environmental responsibility, and with that, transparency and accountability, have become top demands. Can a company like Lidl keep its skeletons in the closet in this day and age or is it about to surprise us all?

News

12 October 2008

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A bigger worry for other players in the grocery sector is the ‘consumer’s champion’ tag Lidl has earned from the National Consumer Agency

People love Lidl the way they love Ryanair. Not surprisingly, because Lidl is the Ryanair of the retail industry. Its stores are no-frills, its deals legendary, its prices rock-bottom. The companies even share the same garish blue and yellow corporate livery. Where they differ is that Ryanair is a publicity diva whereas the German discounter has had a Dracula-like aversion to the public limelight. Lidl Ireland has 2,500 employees but as of the moment we went to print there was no dedicated media spokesperson amongst them. Its German-born CEO, Patrick Kaudewitz, is so rarely seen at industry events that he has been dubbed the ‘The Scarlet Pimpernel’ of the Irish grocery industry.

Admirers of the company would say he’s too busy building Lidl’s fortunes in Ireland to waste time on industry love-ins. And they may be right, because Lidl has been a phenomenal success.

The “consumer’s champion”

When Tesco Ireland opened its hundredth store in Ireland last year – on the tenth anniversary of its arrival in ROI – it was seen as a remarkable achievement, a confirmation of Tescopoly’s domination of the Irish retail landscape. But another major chain has opened its hundredth outlet, in less time than it took Tesco and with none of the fanfare. That chain is Lidl, which unveiled its first Irish store in 1999 and quietly chalked up its century in Dingle, Co Kerry on 24 July. Or was it Kanturk, Co Cork, on 17 July? We don’t know for sure because they don’t tell us these things.

Of course, in turnover terms, Lidl is still no match for Tesco, which holds a 21% share of the total Irish grocery market. By contrast, German discounters Aldi and Lidl between them barely account for 7% (TNS: April 2008). But the rate of Lidl’s turnover growth (15.6% in 2007/2008 compared with the market average of 7.1%) must be a worry for Tesco. And clearly a bigger worry still must be the ‘consumer’s champion’ tag Lidl has earned since the National Consumer Agency published a headline-snatching price survey in February which found the store to be significantly cheaper than all of its rivals, including 52% cheaper than Tesco, on a like-for-like basket of mid-range own-brand goods.

What has unfolded since, against the backdrop of a rapidly deteriorating economic picture, is nothing less than a full-scale price war into which all of the multiples have been drawn. While shoppers will rub their hands with glee at the prospect of a race to the bottom among retailers, and perhaps even see it as long overdue in ‘rip-off Ireland’, how many of them will ask any questions about the company that is leading the charge?

Transparency matters: Questions unanswered

You can’t blame Lidl customers for loving a bargain, but if they scraped beneath the surface of their object of affection, they might realise that, up to now, there have been many unanswered questions. They might realise that, up to now, high standards and a high degree of accountability has been demanded of retail operators in this country, by consumers and the national media. And they might ask why this company has traditionally been so secretive about itself?

For a start, Lidl’s track record where industrial relations are concerned has been marred by many allegations from employees and their unions. Like Wal-Mart, Lidl does not recognise unions. In fact, it was reported that, in Germany, it split its business into more than 400 separate and nominally autonomous businesses so as to sidestep the legal obligation of having to facilitate Works Councils, the trade union bodies representing workers on site.

Following an investigation of Lidl in Germany, the company publicly apologised to all staff members that were spied on by security contractors

While Lidl does pay shop-floor and managerial staff more than average, its treatment of workers has come in for heavy and sustained criticism in a number of countries including its homeland. In 2004, German trade union Ver.di published a book called Das Schwarz-Buch Lidl Europa (‘The Black Book on Lidl in Europe’) based on a list of some 3,500 grievances and complaints from current and former Lidl employees. The Black Book, updated in an English translation in 2006, contains some very serious allegations. In Portugal, the book, claims, female employees whose contracts were due for renewal were asked whether they intended having children. In Germany, managers were accused of monitoring employee behaviour with secret cameras and compiling a dossier of conversations had with employees.

Similarly, in March this year the German magazine Stern published a lengthy report documenting systematic spying on employees in a number of Lidl outlets in Germany and the Czech Republic, which prompted an official government investigation in Germany. And closer to home, in an article in The Guardian newspaper last year, two former employees at a Lidl outlet in Sligo claimed they had been asked to work back-to-back 11-hour shifts on numerous occasions, in breach of the EU Working Time Directive.

What about sourcing?

If there are concerns over Lidl’s alleged treatment of its workers, then there are also questions to be asked about its product sourcing policy. In these days of ethical consumerism, more and more shoppers are objecting to products being needlessly shipped halfway around the world, especially non-exotic fruits such as apples, which grow in abundance here in Ireland. At Lidl Finglas, you can buy Gala apples all the way from Brazil but none from Ireland.

Of course, all the supermarkets may be guilty of such sourcing decisions, but Lidl is especially determined to go for value over locally sourced. We know this because Patrick Kaudewitz has said as much. In a rare public appearance before the Oireachtas Joint committee on Enterprise and Small Business in March 1999, where he was outlining Lidl’s plan for the Irish market, Kaudewitz fleshed out what he termed Lidl’s “European Sourcing Strategy”. He said: “We would never try in any country where we trade, to source all products in that specific country. Our policy is more, for instance if we find a supplier for orange juice, we would encourage that supplier to supply to a number of countries, thereby attracting the supplier by offering volume.”

Apples grow abundantly in Ireland and yet are not to be found in Lidl. The company claims to have many Irish suppliers however

On paper, this sounds good for Irish suppliers but, realistically, how many Irish producers will have the scale to supply an organisation the size of Lidl? And smaller or artisan producers might as well not bother touting for the business at all, unless they happen to produce one of the very limited number of perishable products that Lidl, by necessity, must source within the local market.

But even here Irish producers miss out. The Finglas store did carry some fresh bacon from a Kilkenny producer and beef from Tipperary but its milk, lamb and chicken all came from Northern Ireland. Among ambient food products and household categories, it was the same story. The bread was made by British Bakeries (Hovis and Mother’s Pride) and Irwin’s of Northern Ireland; the pizzas by Wagner of Germany; the dairy products by Mueller, also of Germany; cleaning products mostly by McBride of the UK. There were also a whole host of products of indeterminate origin, the packs bearing the legend ‘specially produced in Europe for Lidl GmbH’. Irish-sourced? Possible, but unlikely.

In the past, retailers in this country have come under criticism from Irish consumers bemoaning a perceived deterioration in quality and the lack of genuine Irish produce, including those rival supermarkets that were deemed by the NCA to be uncompetitive. Is the discounter exempt from such scrutiny?

What of CSR and accountability?

A third area where Lidl has been criticised is for the lack of a publicly expressed corporate social responsibility (CSR) policy. These days, most large organisations, particularly consumer-facing ones, would be expected to have some statement that articulates their engagement with suppliers, customers, employees, the environment and the wider society in which they operate. Not Lidl. Type ‘Lidl + CSR’ into Google, and what comes up is a list of articles outlining where Lidl has failed as a ‘good corporate citizen’. In comparison with ‘Tesco + CSR’ which produces listings of its own websites and numerous instances of its CSR.

The reason Lidl could do this is very simple; it’s a private company. Whereas publicly listed companies such as Tesco have to be accountable to their shareholders and transparent to a high degree on issues such as industrial relations, sourcing and CSR, Lidl has no such obligations. However, we believe Lidl may be on the verge of a strategic about-face, having surprised us with a sudden and very uncharacteristic action.

Lidl speaks

At the beginning of our research for this report we tried to contact Lidl in order ascertain whether any of the allegations levelled at it had ever been put formally to the company or answered by it. We wanted to ask it about its policies on sourcing, CSR, and corporate citizenship, to learn if it was willing to talk openly about such issues, even if it wasn’t obliged to.
Finding a means of contacting the retailer was a challenge in itself. Its website gave no hint of the company’s physical whereabouts in Ireland, only a lo-call hotline for customers. The site also gave us no clue as to the company’s policies regarding any of the issues about which we wanted to enquire. Any attempt to speak with ex-employees were fruitless, as current and former Lidl workers are bound by confidentiality agreements.

So we were not surprised when, on eventually finding an inside contact, our efforts were rebuffed several times throughout the month. A number of attempts were made to get beyond the switchboard at its HQ in Newbridge, County Kildare, but we were curtly informed that “all communication goes through the Board”. An interview request with Patrick Kaudewitz was flatly refused and ShelfLife’s calls were never returned by the said “Board”. Then, at the last minute on the day we were due to go to press, Lidl declared an about-face and issued a lengthy response.

Setting the record straight

Closer to home, Lidl in Sligo was investigated by the Department of Enterprise, Trade and Employment, following an allegation made by an ex-employee. It was subsequently found to be in compliance with the Working Time Acts

As regards the labour relations allegations, Lidl told ShelfLife that in 2007 an ex-employee of its Sligo store did indeed make an allegation. As a result, it was investigated by the Department of Enterprise, Trade and Employment but was, in the end, found to be in compliance with the Working Time Acts. “We can confirm that the ex-employee in question did not take any further legal steps,” it said, adding: “All of our stores are equipped with an industry-leading electronic time attendance system,” which is open to audits by the department.

Of the accusations of spying on employees Lidl told ShelfLife: “There were isolated cases in a limited number of stores in Germany where security contractors took notes in relation to staff activities to accompany CCTV recordings. Lidl Germany has publicly apologised to all staff members involved and has taken all necessary measures to prevent a reoccurrence of such unauthorised activities.”

In relation to CSR and accountability, Lidl’s response was most surprising. We were directed to a new website at www.lidl.ie, where not only did the company elaborate on its corporate principles in relation to customers, staff and ‘business partners’ but, amazingly, gave full contact details for its Irish headquarters. In the three-page email sent to ShelfLife it listed eight examples of the company’s CSR initiatives, including the fact that Lidl was the first discounter to introduce a range of own-label Fairtrade products; Lidl was the first discounter to join the Business Social Compliance Initiative (BSCI) in 2006; and that Lidl has partnered with the Dublin Business School to develop a Bachelor of Business in Retail Management Degree Course.

As regards the sourcing of Irish goods its answers were somewhat vague, saying that it “has an extensive range of Irish suppliers” and a “very positive relationship with the IFA and other representative groups.” Recent reports of protesting farmers would suggest otherwise but perhaps this is an area of the business in Ireland that will develop over time.

What is striking is the fact that Lidl appears to have found a public voice. At the time of going to press, although not confirmed by the company, it was rumoured that the retailer was set to employ dedicated press personnel. Could it be that one of the most secretive operators in the grocery sector is about to open up? If Lidl’s revelations to ShelfLife are an indication of a new, more transparent company, then its presence in the market may be about to take on a new dimension. Ethical and responsible trading is a top priority, hand in hand with accountability. So far Lidl has been content to deliver value to Irish consumers in relative seclusion, and it looks like it may be about to explore the value in coming out of the shadows. We will watch this space.

Lidl fact file

With 7,000 stores in Germany, Lidl rivals competitor Aldi as Germany’s leading discount supermarket. It operates in over 17 countries across Europe and has annual sales of over €43 billion.

The company’s origins go back to 1930, when German entrepreneur Josef Schwarz built up a grocery business under the name of Lidl & Schwarz. However, the company’s successful discount model was pioneered by his son, Dieter, who opened the first Lidl discount store in 1973, copying the Aldi concept. The Lidl name was acquired from a retired schoolteacher for a thousand Deutschemarks. Unsurprisingly, this was preferred to the more obvious appelation, Schwarz Markt, literally ‘Black Market’.

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