German Discount Grocer Becomes An Accidental Regional Tech Giant
Dieter Schwarz, the 84-year-old founder of discount retailer Lidl, has unexpectedly ventured into the data services market. This move, as reported by the Financial Times, was not part of a grand business strategy but rather a solution to an internal challenge.
The journey began when Schwarz Group, which owns Lidl and Kaufland supermarkets, sought a cloud storage solution compliant with Germany’s strict data protection laws. Christian Müller, co-chief executive of Schwarz Digits, told the Financial Times, “We did not start with a commercial motivation in mind but just wanted to address our own needs.”
Unable to find a suitable third-party provider that could guarantee data storage within German or European borders, Schwarz Group decided to develop its own cloud infrastructure. This internal system was designed to handle sensitive data, including store sales patterns, pricing calculations, and customer information from Lidl’s loyalty program.
What started as an in-house project in 2021 soon caught the attention of other German businesses facing similar data sovereignty concerns. Recognizing a market opportunity, Schwarz Group established Schwarz Digits as a standalone operating division in 2023. The unit has since attracted clients such as SAP, Bayern Munich, and the port of Hamburg, generating €1.9 billion in annual sales and employing 7,500 staff.
The company’s entry into cybersecurity followed a similar unplanned path, leading to the acquisition of Israeli firm XM Cyber in 2021 for $700 million. XM Cyber, co-founded by a former head of Israel’s Mossad intelligence agency, specializes in simulating cyberattacks to identify vulnerabilities in corporate networks. Rolf Schumann, Schwarz Digits’ other co-chief executive, explained that they initially evaluated XM Cyber’s product along with every other available cybersecurity solution. Finding XM Cyber’s offering to be superior, Schwarz Group initially intended only to become a client.
However, upon learning that XM Cyber was considering a stock market listing, Schwarz Group grew concerned about potential key staff departures. This led to the decision to acquire the entire company, further expanding Schwarz’s technological capabilities. The acquisition of XM Cyber has since bolstered Schwarz Digits’ cybersecurity offerings, with clients like SAP praising the platform for its ability to show IT systems from a potential attacker’s perspective.
More recently, the group invested in German AI startup Aleph Alpha, further expanding its tech portfolio. Johannes Helbig, professor for digital sovereignty at Erlangen-Nürnberg University, views Schwarz Group’s approach as “important and much welcome” for European digital sovereignty.
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