By selling bread, butter and other basic foodstuffs at bargain prices, Dieter Schwarz has become one of the richest men in Europe.
Now the 84-year-old founder of the discounter Lidl, who according to business magazine Manager Magazine has amassed a personal fortune of €40 billion and is expanding into a very different area of the modern world: data services.
Starting with a system built for internal use in 2021, Lidl-owner Schwarz Group now also offers cloud computing and cybersecurity services to corporate customers.
Its IT unit Schwarz Digits – which became a standalone business unit in 2023 – has won customers such as Germany’s largest software group SAP, the country’s most successful football club Bayern Munich, and the Port of Hamburg. Last year, the unit generated annual sales of 1.9 billion euros and employs 7,500 people.
“We didn’t start for commercial reasons, we just wanted to satisfy our own needs,” Christian Müller, co-managing director of Schwarz Digits, told the Financial Times in a rare interview. “We are on a very steep growth path.”
A key selling point of this service is that all customer data is processed and stored exclusively in Germany and Austria, where strict data protection laws apply.
When Schwarz, a private company with annual sales of 167.2 billion euros, first explored new ways to store data, “it didn’t want to be dependent on third parties,” Müller said.
And if there was no German option, the company at least wanted to use a European provider and avoid storing data in other countries. When the company came to the conclusion that no existing provider could meet its needs, it decided to set up its own cloud service.
“We have a lot of highly sensitive data,” said Müller. This includes sales patterns from individual stores, price calculations, customer information from the Lidl loyalty program and details of the group’s 575,000 employees.
When Lidl launched its own cloud, the company quickly realized that other German companies were asking themselves the same question: Did they want to use the largest cloud services based in the US and China?
“It is extremely important that Europe is at the cutting edge of information technology and can provide such services,” said Johannes Helbig, Professor of Digital Sovereignty at the University of Erlangen-Nuremberg. He added that the Schwarz Group’s approach was “important and very welcome” and “an extremely encouraging example.”
A condition of an interview at the Schwarz Group’s IT control center at its sprawling headquarters was that the exact location on the site not be disclosed. The group is concerned about the security of the nerve center, which is crucial to the operation of its 14,000 Lidl and Kaufland stores worldwide, as well as its 220 warehouses and a growing number of factories that make products such as bottled water, pasta and ice cream.
Before entering the premises, visitors must leave their mobile phones and all other electronic devices in a locker outside. Access is controlled by staff at a desk and by an automatic door controlled by a palm vein scanner.
The company is notoriously publicity-shy and only started hiring media relations staff a few years ago. Based on the outskirts of Neckarsulm, a small town of 27,000 in affluent southwest Germany, it has slowly opened up in recent years. It now sponsors the Lidl-Trek Tour de France cycling team and was a prominent partner of the 2024 European Football Championship. The children who accompanied the players to the start wore Lidl-branded gear.
Last year, Schwarz decided to enter the artificial intelligence space and acquired a minority stake in German AI start-up Aleph Alpha.
Dieter Schwarz is using this opportunity to pursue broader goals in this rapidly evolving technology: His non-profit foundation is working with the company’s home state of Baden-Württemberg to fund an AI campus in the city of Heilbronn. The campus is intended to become “the global home” of applied AI and is working with Aleph Alpha.
Schwarz Digits’ focus on cloud computing, cybersecurity and AI is “well thought out,” said Axel Oppermann, owner of German IT consultancy Avispador, because all three areas are “highly relevant for customers.” The owner’s size and financial strength make Schwarz Digits more attractive to external customers who are “looking for an IT partner that won’t be gone within two years,” he added.
While Schwarz Digits has become a “credible regional challenger” to large incumbents such as Amazon Web Services, Google and Microsoft, Oppermann said the company is at a competitive disadvantage because it lacks the broad network of external service partners that market cloud products and help implement and manage services. Amazon Web Services, for example, has a network of 130,000 partners in 200 countries.
However, for regional companies that place a high value on data protection and control, Schwarz Digits is an attractive option. “The main reason for us (to use Schwarz) was the digital sovereignty of the offering,” Bayern Munich told the FT, adding that Schwarz Digits’ focus on data protection and privacy was striking. “There is no comparable product available on the market,” the club said.
Its cybersecurity products have also won over software giant SAP, which became a customer in 2023. Schwarz’s cybersecurity platform “shows us our IT systems from the perspective of a potential attacker,” SAP told the FT, adding that it is useful for identifying vulnerabilities and analyzing potential threats.
Schwarz built up this expertise in 2021 when it bought the Israeli cybersecurity company XM Cyber for $700 million. Originally, it only wanted to become a client of the company, which was co-founded by a former head of the Israeli secret service Mossad.
“We evaluated every cybersecurity product available and came to the conclusion that XM Cyber’s is by far the best,” said Rolf Schumann, Schwarz Digits’ other co-director. But then the group learned that XM Cyber was considering an IPO and feared that this could lead to the departure of key employees. “So we decided to bring the entire company into our group.”
Schwarz’s investment in AI is “the next logical step” to expand its technology expertise, Müller said. When Aleph Alpha raised more than 100 million euros in fresh equity last year, Schwarz Digits participated in the financing round, which also included research grants and business commitments worth almost 400 million euros.
But just as Schwarz’s approach to cloud computing is characterized by caution regarding security and data protection, he also follows similar principles when using external AI.
Although the company sees this as a crucial new technology, it is concerned about internal data being used with AI tools that are outside of its control. “We didn’t want to fall into that trap,” said Müller, so it decided to block employees’ access to ChatGPT “on day one” when the chatbot was introduced.
