Lidl CEO Ignazio Paternò has announced his resignation, according to media reports. Paternò had been Lidl’s third CEO in three years, succeeding Sven Seidel (2014-2017) and Jesper Hojer (2017-2019).

Disagreements with Schwarz Group chief Klaus Gehrig were widely cited as triggers for those exits. Sources close to the business say Paternò’s reasons are personal and may have been prompted by a desire to return to his native Italy. However, his resignation will have an impact on the wider group as Gerd Chrzanowski, who has been designated successor to Gehrig since March 2020, will now act as temporary Lidl CEO role until a successor is announced.

These changes are coupled with market-level executive changes. Lidl Germany has seen a complete overhaul of the management team, and Julia Kern (30), deputy to the CEO Matthias Oppitz, will lead the operational business in the market. Across the German executive team all positions, from operations to procurement and property management, have seen significant changes of late, almost like a game of ‘musical chairs’ at the very top.

Schwarz Group’s digital transformation since 2018

The transformation at Lidl has been parallel to Schwarz Group’s comprehensive structural change of the 12-member Schwarz Unternehmensstreuhand KG (SUT) Supervisory Board in 2019. Former Google manager Sarah Fix-Bähre and ex-Edeka IT director Reinhard Schütte were brought on board to add tech expertise. This was also when Chrzanowski was named as Deputy CEO, a new role in the business.

The digitization of the discounter business may have been one of the underlying reasons for executive changes and tensions, as it fundamentally changes how both Lidl and Kaufland operates. Lidl Digital, launched in 2018 with five Digital Hubs across Europe, has been the focus of innovation, pushing the discounter to work in new ways such as partnering with last-mile apps, and launching radical new features such as Lidl Plus and Lidl Pay.

Since March 2020, the digital arm of Lidl has been absorbed within the Schwarz Group business, with its digital CEO Rolf Schumann acting as its head. This meant the Lidl division no longer has autonomy over its digital initiatives, hinting that the parent is keen to create synergies on the back of Lidl Digital’s success. This is especially relevant now Kaufland has acquired former Metro AG ecommerce platform in Germany.

Going forward

In the past financial year (to 29 February 2020), Lidl increased sales nearly 10% to EUR89 billion. The company has not yet made any official statements on the impact of COVID-19 in Germany or in international markets. However, the more-or-less permanent war against Aldi is intensifying, especially in its home Germany market, and in the putative future growth generator USA.

In Germany, both discounters lost market share to full-basket operators such as Edeka with operating expenses soaring as all retailers tried to comply with government regulations to fight the pandemic. A price war against Aldi soon made headlines following the German government’s VAT cut. In the US, expansion pressure requires Lidl to continue investing in store openings at a steady pace, not in a bid to catch up with Aldi but to steal shoppers where possible.

Kantar’s Point of View:

  • All in all, the COVID-19 impact on channel mix and shopper frequency, coupled with heightened operating expenses in all markets, have created unique challenges for Lidl, pushing the management to slow expansion, price investments and new market entries. Going forward, Lidl will have to pick its battles both internally but also against its arch-rival Aldi.
  • Lidl Switzerland signals that Lidl will continue to stick to its modernization plan for stores, rolling out the new concept across the market. One of the fundamental changes is in the fresh fruit and vegetable department. It is still sited at the entrance, but is no longer strictly linear, creating a market-like look and feel, designed to encourage dwell time. Store transformation pace may differ by market, but Lidl is dedicated to shaping shopper expectations and disrupting traffic to competitors. It is not about ‘not falling behind’ but ‘leading’ the in-store experience innovation.
  • Lidl’s stores may see a slower evolution through category extensions and new concepts, but it is the fast-growing digital initiatives that will keep the top executive teams awake at night discussing resource allocation and return on investment in board meetings. The diversification of the operational portfolio creates new complexities at decision-making level, introducing new challenges to a decades-old business proud of its clearly defined processes.
  • For brands working closely with Lidl, the day-to-day disruption caused by such top-level changes are minor, but it is the long-term direction of the company that matters. Strategic partnerships will only become more demanding and more complex as Lidl is now not only walking less-beaten paths, but also with an ever-changing team of decision-makers.

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