Aldi and Lidl
The continued success of the two German grocery discounters, Aldi and Lidl, as they extend their businesses worldwide, seems unstoppable. Both companies’ entrance to international territories, specifically in the European, UK and US markets seemed very timely, especially because of the economic recession that these territories are experiencing. People, nowadays, want more value for their money and therefore, the concept of discount grocers, have never been so widely accepted, both in financial and cultural terms.
The challenges that both companies faced as they entered different markets brought about fundamental changes in their business structure and strategy. Both Aldi and Lidl adopted the minimalism and efficiency approach, reducing all costs to a minimum, but still offering good quality products and making reasonable profit. Although both businesses are similar, in the sense that they are both discount grocers, there are various essential differences in their business strategies especially regarding international expansion.
As the market in Germany was on the brink of market saturation from discount grocers and insignificant growth in the economy, both companies had to look for international prospects. Aldi, the older of the two companies, entered new markets worldwide more moderately and calculated, whilst Lidl opened stores worldwide more aggressively than Aldi, utilizing the trial and error approach (Ghauri, P. & Cateora, P. 69).
The internationalisation of both businesses led to the variation of their strategies in order to satisfy the interests of various markets. One of the main problems that both businesses encountered, during their international expansion, is the cultural differences in the markets that they operated in. Such was the case of Aldi, when it entered the UK market in 1990. In contrast to the German market, the UK equated low cost to low quality and therefore consumers were reluctant to try Aldi. To combat this perception, Aldi invested heavily on advertising campaigns and revamped their stocks to include more variety for consumers to choose from - a far cry from the company’s strictly no frills approach. Lidl’s aggressive and trial and error approach did not work in the Norwegian market. Their business strategy faced strong resistance and they misread Norwegians’ buying habits. The lack of research and underestimation of cultural differences caused Lidl to sell 50 of their outlets at the same time, severely slowing the company’s growth objectives.
Both companies have realised the importance of responding to market needs and consumers’ attitudes when entering a new market. This meant slightly deviating from their original concept and adapting different ways to fulfill customers’ demands. In Switzerland, for example, Aldi’s German-branded products were re-labeled and became Swiss-branded products (Ghauri, P. & Cateora, P. 70). In the US and in the UK, Aldi tweaked its retail formula to lure middle class shoppers. Their new stores have higher ceilings and big windows, and they have increased their product range, adding more fresh produce new branded products of higher price range Lidl, on the other hand also included more of UK regional products which are mostly procured from local suppliers. All of these imply higher costs and there is a danger that both of their images of no-frills discount grocer could change as they continue to provide higher quality and higher priced products.
In 2010, only after two years of beginning its operation in Greece, Aldi ended the operation of its 38 branches in the country. This is the first time that Aldi has turned its back on a market. The main reason that the company gave was that the business in Greece was no longer sustainable, Greek media speculated that Aldi could not stand against its main competitor, Lidl, who entered the Greek market way before Aldi. However, in the same year, Aldi also announced their plans of opening additional 25 new stores in the United States, after opening 75 new stores the year before. And very recently, Aldi announced that it is investing more than US$100m to open 30 outlets in Houston over the next three years (Askew, “US: Aldi plans”). Aldi’s calculated approach seems to have been replaced with an accelerated method in the US.
Aldi’s rapid expansion to the US was not enough to stop Lidl on its track. Lidl’s trial and error approach have worked very well in most countries amidst setbacks in some. Lidl is now bigger than Aldi with over 10,000 stores worldwide. However, Lidl is currently facing a moral dilemma with its situation in Greece. Having opened 230 stores since 1999, Lidl is now the sole discounter on the economically troubled country. There are many speculations about Lidl’s subsequent plans: will they sit the situation out or will they make a strategic decision to subsidise its Greek business? Time will tell.
As the battle for world domination between these two German super grocer discounters continues, it is apparent that there are still many factors to be considered by both companies to develop a more robust worldwide strategy. The internationalisation of both Aldi and Lidl presented their weaknesses, nevertheless both companies continue to be efficiency seekers, focused on supplying fast moving products at the lowest possible costs.
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