Will Lidl’s New Acquisition Come With a Supply Deal?

Lidl will be taking on new markets, new store configurations—and in another first, a new supply contract—as part of its surprise takeover of Best Markets.

The German hard discount retailer, with U.S. headquarters in Arlington, Va., announced an agreement to acquire 27 Best Markets stores from its family owners last month, in a deal that would help the discounter establish a heavy presence in metro New York.

Sources told WGB that Best Markets is subject to a supply agreement with C&S Wholesale Grocers that, like property leases, would come along with the acquisition of its stores. The length of the contract was unclear, but it would put Lidl in the unusual position of relying on a third party to distribute its goods, where much of the efficiency underlying its pricing advantages lies in controlling its supply chain. Similarly, Best Markets leased and not owned sites, which would be unusual for Lidl, although the company acknowledged a year ago it would consider leased sites to aid its expansion.

C&S and Best Market have been closely aligned over the years. Until a brand renewal several years ago, the stores went by the Best Yet Market banner. Best Yet is a former Fleming Cos. private brand acquired and distributed by C&S.

A Lidl spokesman declined to comment specifically on the status of the supply agreement or Lidl’s plans, referring to a statement in which the company said it would run the Best Market stores under their current brand under “normal operations” until they close in preparation for a “step by step” conversion to Lidl stores beginning next year. He said the company would have more to share on those plans then.

Burt P. Flickinger III, managing director of Strategic Resource Group, in an interview with WGB said the existence of a supply agreement will likely help Lidl as it adjusts to what is expected to be considerable new volume coming with the Best Markets stores. He estimated the stores do about $355 million in annual sales; another source said that total was likely closer to $500 million.

Lidl currently supplies its 60 stores from owned warehouses in Virginia and North Carolina, although it is also in the process of opening a third distribution center in Perryville, Md., that would be closest to the New York area stores. Flickinger anticipated the company would eventually look to establishing a New York-area warehouse.

Lidl will bring a decidedly different look and feel to Best Market, which competes on neighborhood locations and service food departments such as premium Boars Head delis that hard discounters have traditionally eschewed. Its real estate portfolio is primarily neighborhood shopping center locations, but it also includes ground-floor urban commercial space in New York’s Harlem neighborhood. Though vastly different from its distinct self-developed sites, Lidl contemplated alternatives to that building in a recently released real estate brochure illustrating a new flexibility when it came to sites. Lidl is also developing a smaller version of its 36,000-square-foot flagship prototype, according to numerous reports.