Lidl: The Next Wave in the German Grocery Store Invasion
German grocery powerhouse Lidl (pronounced lee-duhl) arrived in the United States recently, opening 10 new stores along the East Coast and putting big-name companies like Walmart, Whole Foods, and Trader Joe’s on high alert. The company, which has 10,000 locations in 27 countries, is hoping to win over Americans with its sweeping discounts, modern stores and carefully-curated wines. Its newest supermarkets are concentrated in Virginia, North Carolina, and South Carolina, but 90 more East Coast locations are planned for the coming year.
The company, which has its U.S. headquarters in Arlington, has been quietly testing its plans for the American market for over a year, using a prototype store in Fredericksburg, Va., to understand its newest shoppers. Among other things, executives say Americans expect chilled beer and free bakery samples, which Lidl is adding to its U.S. stores. But what exactly is Lidl and what will its U.S. stores bring to America?
Low prices – In an industry marked by cutthroat competition and mounting markdowns, Lidl executives say they plan to offer even larger discounts, with prices that are up to 50% lower than at rival stores. The grocery business is a notoriously tough one. Nearly 20 U.S. grocers filed for bankruptcy in the past three years, so the introduction of Lidl and fellow German discounter Aldi (which is investing $3.4 billion to open 900 U.S. stores) is set to intensify that battle.
Smaller stores – Lidl’s first U.S. stores are about 21,000 square feet—around the size of many Trader Joe’s stores but considerably smaller than grocers like Whole Foods, Safeway, and Giant. Lidl executives say, though, that you will still be able to find what you need. “A lot of the supermarkets are so large, it’s a challenge for people to go shopping,” Brendan Proctor, the U.S. chief executive of Lidl said earlier this year. “If I wanted to go in and get a bottle of ketchup—first of all, there are probably about 24 aisles in the store. I have to find what aisle it’s in. I get there, I find that there are 50 types of ketchup. Who honestly needs 50 types of ketchup? We can streamline that.” The company’s stores have just six aisles, and 90% of its shelves are filled with its own brands.
Efficiency – Lidl is able to keep prices low in part by cutting waste in every step of the process, spokesman William Harwood says. “We look at waste differently,” Harwood said. “It’s not just what ends up in the garbage can at the end of the day, but also about any inefficiency along the way that ends up costing the customer more.” In practice, that means having paperless offices and stores that rely heavily on natural light. Another example: You will not find onions, oranges, or other produce stacked in intricate pyramid formations. That mainstream practice is inefficient, Harwood says. It can keep prime produce buried, affect the freshness of fruits and vegetables, and require employees to spend a lot of time positioning products just-so. Instead, Lidl’s produce is often displayed in the same cardboard boxes they were shipped in. The boxes are stacked so the freshest items are on top. Once those sell out, employees can easily rearrange remaining boxes as necessary.
Specials – In addition to meat, fruits, and vegetables, Lidl also offers a rotation of “in and out specials” that are released every Monday and Thursday. But you have to act fast. “As soon as they’re gone, they’re gone,” Harwood said of the “Lidl surprises” section, which currently includes $8.99 leather wallets, $11.99 chest waders (a similar pair is $14.88 at Walmart.com), and $19.99 charcoal grills.
Wine – It is no secret that millennials love wine—one study estimates they drank 42% of the country’s supply in 2015—and Lidl is hoping to lure them in with its line-up of cheap, award-winning varieties. The company plans to stock 120 varieties, starting at $2.89 a bottle, in its U.S. stores. Wine director Adam Lapierre, one of 356 certified Masters of Wine worldwide, estimates he tasted more than 10,000 bottles of wine to come up with Lidl’s line-up, which includes an $8.99 bottle of Prosecco that was recently named Sparkling Wine of the Year at the 2017 Independent Wine Competition.
Citations
- http://wapo.st/2sEXAO1 Washington Post
- http://read.bi/2rHR9ER – Business Insider
Nestle Ditches Sweets in a Bid to Get Healthy
Nestle SA’s new chief executive officer is putting the world’s biggest food company on a diet, moving to shed its U.S. confectionery business as he seeks growth from healthier and more profitable businesses. Half a year after taking the helm at the Vevey, Switzerland-based company, Mark Schneider put brands like Butterfinger and BabyRuth up for sale recently. Nestle’s shares rose as much as 2.8% in Zurich trading as analysts said the move signaled that the new chief, with a background in health care, was serious about transforming a company wrestling with the slow growth of the packaged food industry.
“Looks like the start of a new era for Nestle,” wrote Jean-Philippe Bertschy, an analyst at Bank Vontobel. He said the move to divest a unit whose brands also include Gobstopper and LaffyTaffy raises the possibility of strategic reviews of other underperforming businesses, such as the Herta processed-meat brand, U.S. frozen foods, ice cream, or pizza. The review spearheaded by Schneider marks a departure from the approach of his predecessor as CEO, Paul Bulcke, who talked about selling ailing businesses but mostly clung on to such units in the hopes of revamping them. Food companies are under pressure to reduce costs after Kraft Heinz Co.’s unsuccessful bid for Unilever earlier this year showed that even the largest players could become targets. Chocolate makers especially are grappling with weak U.S. consumption as Americans increasingly turn their backs on sugar.
Schneider, who took over at Nestle this year after leading Germany’s Fresenius SE, is the first outsider to be given the Nestle CEO job in almost a century. He has said he aims to boost the company’s health strategy as well as focus on the businesses that are growing fastest, such as coffee and pet food. The review of the U.S. confectionery business, which had 900 million francs ($923 million) in 2016, is his first major strategic move at his new employer and hints at other changes. “Quiet man Mark Schneider is continuing to make waves,” wrote Martin Deboo, an analyst at Jefferies. “We doubt this will be the end of portfolio moves.”
Nestle says it remains committed to its global chocolate business, which includes KitKat. The company acquired several of the brands being sold in 1990 from RJR Nabisco Inc. A sale could fetch 1.35 to 1.5 billion francs, estimates Alain Oberhuber, an analyst at MainFirst Bank AG. Deboo said private-equity firms would be interested, along with industry giants like Mondelez International Inc., which failed in a bid to acquire Hershey Co. last year. While the U.S. brands no longer fit with the healthier image Schneider wants to project, they are also a drag on earnings. The operating margin of Nestle’s confectionery business was 13.7% last year, the second-lowest of its seven product categories. The business has been losing market share in North America every year since 2013, falling to a distant No. 4 in 2014, when it was surpassed by Lindt & Spruengli AG with its acquisition of Russell Stover. Hershey Co. and Mars Inc. together control more than half of the market.
Nestle has been investing heavily in a health-science unit since 2011 and has said it aims to make it a $10 billion business, trying to develop food-related products to prevent ailments such as obesity, metabolic problems, and Alzheimer’s disease. Schneider’s move indicates that further deal-making is in store for the sector as European food company executives react to the shock of Kraft’s Unilever approach, which highlighted the aggressive pursuit of shareholder returns at the U.S. company and its private-equity backer, 3G Capital Inc. Unilever has begun a strategic review of its slow-growing spreads business. Separately, Reckitt Benckiser Group Plc is seeking a buyer for its food unit, which includes brands like French’s sauces.
In Europe, Nestle has already been revamping its chocolate operations. In Italy, the company plans to cut as many as 340 positions at the site that makes Baci Perugina chocolate, just a year after the company sold the Rossana candy brand produced there. Nestle also plans to slash 300 jobs at its U.K. confectionery factories as well as move production of Blue Riband biscuits to Poland. Jon Cox, an analyst at Kepler Cheuvreux, said he would not be surprised to see Nestle sell its entire confectionery business, with annual sales of 8.8 billion francs, as Schneider steps up efforts to stimulate growth. And that could be just a start.
“A takeover/merger with Danone could make sense as a way to build a European champion large enough to withstand a potential takeover by 3G/Kraft and the aggressive cost-cutting business model dominating in North America,” Cox said in a note.
Citations
- https://bloom.bg/2t9Qle0 – Bloomberg
- http://read.bi/2sEmWM5 – Business Insider
The Good News Is . . .
- Interest rates fell last week to the lowest level since November, and the seasonally adjusted mortgage volume jumped accordingly, up 7.1%, according to the Mortgage Bankers Association. Purchase application volume increased to its highest level since May 2010. Refinance activity bumped up as well in response to moderating rates. Loan applications to purchase a home jumped 10% from the previous week, seasonally adjusted, and now stand 5.5% higher than one year ago.
- The Home Depot Inc., a leading home improvement superstore chain, reported earnings of $1.67 per share, an increase of 16.0% over year-earlier earnings of $1.44 per share. The firm’s earnings topped the consensus estimate of analysts by $0.05. The company reported revenues of $23.9 billion, an increase of 4.9%. Management attributed the results to large increases in the sale of big ticket items and improved sales per square foot across its stores.
- Amazon announced that it had agreed to buy the upscale grocery chain Whole Foods for $13.4 billion, as the online retailer looks to conquer new territory in the supermarket aisle. For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut. With Amazon, Whole Foods gets a deep-pocketed owner with significant technological expertise and a willingness to invest aggressively in a quest for dominance. Under the terms of the proposed deal, Amazon would pay $42 a share for Whole Foods.
Citations
- http://bit.ly/2s3R2Iz – Mortgage Bankers Assoc.
- http://cnb.cx/2lwnm3s – CNBC
- https://thd.co/2telWLE – The Home Depot Inc.
- http://nyti.ms/2sK361w – NY Times Dealbook
Planning Tips
Strategies for Taking Required Minimum Distributions (RMDs)
As life expectancy increases, many people want to defer making withdrawals from their retirement accounts for as long as possible to ensure that their nest eggs will meet their retirement income needs. But withdrawals must begin by a certain age to avoid penalties. If you are at least age 70.5, you need to withdraw required minimum distribution (RMD) amounts from your Traditional IRA, SEP and SIMPLE IRA. Depending on the provisions of the plan, you may also need to withdraw from your qualified plan, 403(b) or 457(b) accounts. Below are some strategies that you can apply to your retirement account withdrawals that will help you to preserve your account balance. Be sure to consult with your financial advisor to determine if these strategies are suitable for your financial profile.
Equalize IRA balances for your beneficiaries – If you have multiple IRAs because you want to maintain separate IRAs for different beneficiaries, consider equalizing the balances, which may have changed as a result of withdrawals, contributions, fees, and asset performance. For instance, if you designated three individuals as beneficiaries for each of your three IRAs and you want to leave the same amount for each of the beneficiaries, you may withdraw your RMD amount from the IRA with the highest balance. Alternately, you may transfer amounts between the IRAs to equalize the balances, and withdraw the applicable RMD amount from each IRA.
Cull low-performance assets – If you have multiple Traditional, SEP and SIMPLE IRAs, you can cull dead-weight assets from them by either liquidating the assets or distributing them from your IRAs. Check with your financial planner to determine whether there are assets that you should get rid of because they are either losing money, or not performing as well as the other assets in your IRA portfolio. If the plan is to get rid of those assets anyway, distributing instead of liquidating them could keep transaction fees from being taken out of your IRA balance. However, you must exercise caution when choosing this option. If the assets lose value after being distributed from your IRA, the upside is that you may be able to write off the losses—which would not have been an option had the losses occurred while the assets were in your IRA. On the other hand, if the performance of those assets improves, you will owe income taxes on the earnings. Consider also that capital gain/capital loss treatment can be applied to the earnings/losses—an option that is not available for gains/losses that occur in your IRA.
Notify your IRA custodians – If you plan to aggregate your RMD and distribute the amounts for multiple IRAs from one of your IRAs, be sure to notify the other IRA custodians in writing, especially those that process automatic distributions that do not require your authorization for each year’s RMD. Most importantly, notify the custodian of the IRA from which you will be making the withdrawal in a timely manner, to ensure that your RMD amount is distributed by the deadline. This will help to ensure that you do not owe penalties for failing to make timely RMD withdrawals.
Distribute from Your Qualified Plan, 403(b) and 457(b) Account – If you are still working for the employer that sponsored the qualified plan, 403(b) or 457(b) plan in which you participate, you may defer beginning your RMD until after you retire, if that option is available under the plan. When determining whether you should defer receiving RMDs from such accounts, have your financial consultant assess the performance of the assets in your portfolio and your income needs. If the assets are not performing well, then it may not make good financial sense to keep the amounts in your qualified plan account. On the other hand, consider that withdrawing amounts from your qualified plan will increase your taxable income for the year and could possibly put you in a higher income tax bracket. If you need the assets to cover your expenses, then this is a non-issue. However, if you already have other sources of income that are sufficient to meet your financial needs, it may not be such a good idea to withdraw amounts that would continue to accrue earnings on a tax-deferred basis if left in your qualified plan account.
Roll Over Excess RMD Amounts – If you find that you have withdrawn more than is required to meet your RMD amount and you do not need the extra amount to cover your expenses, you can roll over the excess amount within 60 days of receipt. This will help you preserve your retirement account balance and will allow the extra amounts to continue accruing earnings on a tax-deferred basis.
Citations
- http://bit.ly/2rCJ5Ks – Fidelity
- http://bit.ly/2sBw0jZ – Morningstar
- http://bit.ly/2scYDUb – Investopedia
- http://bit.ly/2bkbtcZ – Kiplinger
- http://on.mktw.net/2rHLwGZ – MarketWatch.com
