Lidl UK MD Ronny Gottschlich: Big interview

If Ronny Gottschlich is nervous before his first-ever interview, it doesn’t show. In fact, he seems relaxed and talkative - which is no bad thing seeing as Lidl’s legendary vow of silence makes for a million questions. And the first has to be why Lidl has finally decided to open up? He laughs. And says he knew that would be our first question.

“We’ve been too quiet,” he explains. “And as there is a demand to learn more about us, we want to tell our story: what is happening with our business, why we are successful, why we are getting more customers. And we believe the time to talk is now.”

“We believe our customers can up-trade, but at the same time we want to make sure we offer something that is right for everyone’s pocket”

Ronny Gottschlich

The key audience for this more communicative Lidl is customers. Gottschlich has spent £750,000 on Lidl’s first-ever TV ad, soundtracked by a cover of One Direction’s Little Things - tweaked to ‘Lidl Things’. It was worth every penny, says Gottschlich. “Three weeks in and we are seeing customer numbers up 18% and like-for-like sales are up 25%. It’s done fantastically well.”

Response to its luxury food flyer among foodies has been equally enthusiastic. Swelling the size of its premium Deluxe range from 30 products to a gargantuan 300, the Yuletide additions introduce affordable-luxury treats like enormous legs of Serrano ham and whole lobsters. “We thought we wouldn’t be able to top last year, but this year has been unbelievable. We will hit £64m turnover from Deluxe alone.”

Less fantastic is the negative press Lidl endures every Christmas for selling reindeer steaks. Gottschlich insists he is not annoyed by it, although his voice does climb up a notch. “We hear this reindeer story every year, but last week we put in 17,000 units and sold 50% inside three days. The customer wants it, it’s ethically sourced and it’s delicious. We’ll probably have to increase it next year.”

Christmas is obviously very much the focus at Lidl, but after 12 months of careful planning, Gottschlich believes he can relax. “Of course we look at the figures, but we are already starting preparation for next year, looking at what the competition is up to.”

Cleansing

Yet the business is in a very different situation from the one Gottschlich inherited in 2010. While he refuses to talk about the past, Gottschlich was Lidl’s third UK MD in two years. And he admits some “cleansing” had to take place before the business could move forward, closing eight stores and bringing a temporary halt to its expansion.

Walking around a shiny new Lidl makes it clear how much the one-time no-frills discounter has evolved. The old blue and yellow sheds dotted with a ramshackle assortment of unrecognisable Continental brands are long gone. Gottschlich has upped the ante by massively increasing the space dedicated to fresh produce, a concept he refers to as ‘Superfresh’. For example Lidl used to carry 15 meat lines when Gottschlich took over. Now it has 85. It’s had a demonstrable impact on sales.

“This year fresh accounts for 40% of turnover. I can see that growing to 50%. The more customers see fresh, the more they buy. Overall, we have increased the space dedicated to it by 40% and next year we will add even more. We are rolling out fresh fish as well, and all 600 stores will have bakeries by February next year.”

Gottschlich has also upped SKU numbers from 1,450 to 1,600. And he’s aiming for 1,700 next year. The number of “key brands” is also up from 50 to 300. And to make room, rather than remove existing products, Lidl is merchandising more efficiently, cutting back on bulky shop floor pallets.

“Now you see many less lines merchandised on a palate, which gives us more space. Before you had stack it high sell it cheap. This is less and less the case.”

As for the shops themselves, he’s doubled their standard size from 8,000 sq ft to 16,000 sq ft for the newest stores in leafy Dorking and plush Sevenoaks, where he enjoys spotting the occasional Bentley in the car park.

Prices

He’s not getting carried away, though. Lidl is not going posh. In March it also introduced a range of budget-priced essentials under the ‘Simply ’ label to complete a good, better, best tiering offer.

“We are not trying to lose our customer base. We believe our customers can up-trade to Deluxe, but at the same time we want to make sure we offer something that is right for everyone’s pocket.”

It’s an important point because, although quality has become a mantra for both Lidl and Aldi, price is their raison d’être. Asked how Lidl hits those low price points, Gottschlich points to a combination of factors.

“We are still growing now. In five years we may go to America, so you never know the opportunities for people that join now”

Ronny Gottschlich

“We have a limited, but attractive, choice of products, so customers don’t pay more for someone else to have more choice. We bulk buy. We are Europe’s biggest retailer in terms of turnover, which gives us quite some buying power. And we are incredibly efficient, right down to the finest detail. That’s the German side of the operation. For instance, all our stores are laid out the same as our warehouses, so when we pick our pallets and deliver them to the stores, the person who fills the shelves doesn’t have to go to the sixth shelf, then the first, then the fourth. The pallets arrive in order. That way it is more efficient. And we cost manage. There are light sensors in every warehouse and every staff room, because electricity costs money. We have upgraded all our chillers to more efficient ones. We are cost saving all the time to be more cost competitive.”

The upshot is that, for the vast majority of products, Lidl delivers significant savings. For example, three mixed peppers from Spain cost 89p in Lidl, but £1.75 in Sainsbury’s. Sirloin steak costs £10.98 per kg in Lidl but £19.50 per kg in Tesco. Even the Tesco Everyday Value sirloin steak costs £14. Just two examples from a long list that show Lidl’s long-term core proposition of low prices remains.

Nor has Lidl achieved these low prices by sourcing its goods from far-off lands. The vast majority of its meat has been sourced from Britain for years, although Lidl only started to shout about it last year. Wouldn’t it be cheaper to buy from other countries?

“There is no question about the cost when there is such strong demand for British meat,” says Gottschlich. “You have to give the British what they want. There is no point doing otherwise. We want to get across the fact we are a British retailer.”

Gottschlich even sees himself as “more English than German” these days. “British people enjoy spending their money. I supported Chelsea because of Michael Ballack but I love British football. And I love the British sense of humour.”

He’s certainly prepared to laugh at himself. “Last week I gave a speech at Henley Business School and the schedule over-ran by 15 minutes. I was thinking, ‘How can this be?’”

Fast tracking

While the über-efficient German stereotype still persists, Gottschlich has come a long way since growing up in East Germany. A keen athlete he dreamed of teaching history and sport, but ending up with two dodgy knees, he switched focus. He had two interviews after graduation. He picked Lidl because it offered a better package, with “a big car and a nice starting salary. We still do.”

Three years later he was running Lidl’s South of England operation. “Fast progress, yes, but if you work for a fast-growing retailer the chances are there. We are still growing now. In five years we may go to America, so you never know the opportunities for people who join now.”

Growing up in socialist East Germany also instilled a strong sense of teamwork in him, because “we were always asked to achieve something together”. That shows in his restructuring of the recruitment process to ensure the team spirit he has worked so hard to foster remains despite Lidl’s rapid expansion. Each new recruit gets “46 hours of time and training” and a mentor for 12 weeks “so they feel welcome and get the right education. It will cost us millions but it will pay back in the long run, because we keep the mentality.”

Expansion

Investment in people is not the only area where Lidl is splashing the cash. Lidl invested £170m in 2013, with over half going on expanding fresh in 450 stores. In 2014 it plans to spend “big time” by investing a total of £220m on new stores, warehouses, and adding further improvements to the existing estate. In 2015 it will increase investment even further to £300m to “make sure we are future-proof and continue to gather momentum”.

Lidl currently has 600 stores, 100 more than Aldi, but Gottschlich wants many more. And he wants them now. “We added 12 in 2013, next year we plan 15-20. We want to return to pre-recession pace, so 25-30 a year.”

As for the overall estate, Gottschlich would like to “double it” to 1,200, although up to 1,500 is “our vision”. He concedes that will take time, because factors like the fluctuating economy inevitably mean “sometimes we speed up, sometimes we slow down”.

Now he is focused on growing a “quality portfolio” by choosing locations carefully. It’s a task made harder on two fronts. First, his rivals can “feel the economy starting up again” so are also in the market for prime locations. Second, like any supermarket, there is frequent local resistance to new stores. Although he doesn’t take it personally.

“Any snobbery is a thing of the past. Smart shoppers do their weekly shop with us and come out saying ‘this is amazing’. Does anyone want a retailer with a car park to open next to their house? It’s not to do with Lidl, it’s about noise. But once we open, those car parks are packed.”

“We don’t officially publicise profits, but that might change. For us to talk today is a first step.”

Ronny Gottschlich

As to how Lidl will pay for it all, or how much money Lidl makes, a complex company structure means Lidl only files partial accounts under its official name with Companies House. And when pressed on the details, a familiar wall of silence begins to descend.

Gottschlich insists Lidl pays all its UK taxes. He volunteers that Lidl had sales of £3.3bn last year. He says “it’s making money”. But he declines to elaborate further. “We are happy to be in a position where we don’t have to get our bottom-line results out to the public. We’d like it to stay that way. We don’t officially publicise our results. At this moment in time, we choose to be that bit less open. That might change in the future. For us to talk about facts and figures today is a first step.”

A forensic dissection of the numbers isn’t necessary to see the impact Lidl is having on supermarkets like Tesco, Morrisons and Asda. Gottschlich says like-for-like sales are up 18%, more than Kantar’s estimate, which pegs them at around 14%. Either way, they are sales boosts the big four would kill for. Not that Gottschlich will be drawn into commenting on them. “It’s not for me to look at other retailers. I am really proud of what we are achieving. We have developed the perception of Lidl, the Britishness and the staff. That has paid dividends by the growth you see. And we have more ideas to come, to make the Lidl story something that no-one can resist.”

Potential

If there is anything the major multiples can do to combat that rise of the discounters, Gottschlich isn’t going to reveal it. “No, I won’t tell you. I’d be stupid to! We are simply seeing something happening in Britain, which other countries in Europe have seen happen 20 years ago. Our type of supermarket is getting more appreciation and understanding and it will only get more accepted. It has huge potential for growth.”

Gottschlich also politely bats back questions about Aldi’s faster rate of growth, its EDLP offer and its rip-roaring numbers.

Although he does crack when asked if he would ever work for Aldi, almost growling “no”.

He is equally clear when asked what he would say if any other UK supermarket attempted to lure him away. “What would be the offer that could tempt me? Maybe if Roman Abramovich phones me up and asks me to replace Fernando Torres. But, until then, I have a unit here with huge potential. It almost feels like a start-up. So why would I consider going anywhere else?”