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Aldi And Lidl Are Both Successful Economics Essay

Aldi and Lidl are both successful grocery retailer stores that started off their business in their home country Germany and ended up expanding their markets to almost all parts in Europe.

In case of Aldi, they even have their stores in Australia and Unites States. They both had the perfect market strategies for their grocery retail store that helped them increase their profits on a larger scale.

While Aldi followed a ‘Hard’ discount strategy, Lidl followed a ‘Soft’ discount strategy. Because of their huge success, the companies are now trying to enter the markets of Russia, Croatia, Mexico, Brazil etc.

ALDI:

Aldi is a German grocery retail store that offers HARD discount i.e. they sell less number of items (store brands) at a very cheap price which increases their profit. Aldi was founded by Karl and Theo Albrecht in the 1960s. Aldi is short name for Albrecht Discount.

They had a simple strategy of increasing their sales volume and profit by subsidising the prices of the product. They had a minimalistic approach wherein they did not spend much on the store design, customer care or advertisement. They sold their products in warehouse like stores. By decreasing the prices of the products, they were able to sell more number of products and hence larger profit.

Their target consumers were the average budget consumers who prefer quality products at lower prices. They followed the theory of economies of scale.

If we were to compare Aldi and Lidl in terms of their sales volume, Aldi could be found to have more market in Germany than in a foreign market. Lidl could be seen to have more sales volume in foreign markets than Aldi.

Aldi has now reached market saturation on Germany and is now looking forward to expand their markets further and target a different audience. They had a turnover of £2.76bn in 2011 (The Grocer, 2011). Aldi has over 9000 stores all around the world now.

LIDL:

Lidl is also German grocery retail store that offers SOFT discount i.e. they sell larger number of items that include both branded products and store products at lower prices. Lidl was opened in 1973 by Dieter Schwarz in Ludwigshafen, Germany. Lidl entered France in 1988. They now have stores almost all over Europe and also in some parts of South America.

COMPARISON- SALES VOLUME:

If we were to compare Aldi and Lidl in terms of their sales volume, Aldi could be found to have more market in Germany than in a foreign market. Lidl could be seen to have more sales volume in foreign markets than Aldi.

REASONS WHY ALDI AND LIDL CHOSE GREENFIELD INVESTMENT STRATEGY:

Greenfield investment strategy is where a company buys a land and builds its store from zero level. Aldi had a strategy of buying lands in remote districts or in regions where the cost of property is low so as to spend minimum and gain maximum. Greenfield investment strategy helps the company to integrate with the culture of a foreign market i.e. if they are targeting a foreign country. Companies could even get tax subsidies from the foreign country they are trying to penetrate on the basis that they provide employment to the locals there. Employing locals is even more beneficial as they help in better understanding of the culture in the foreign land which could in turn help in adapting and modifying their products and strategy according to the cultural differences. Aldi and Lidl were able to adapt better to the foreign markets because of this strategy as it helps in a better understanding of the market in terms of customer preferences and tastes. This strategy had a positive impact on emerging markets as there was generation of employment, exchange of knowledge and increase of living standards.

Hence, the Greenfield investment strategy was beneficial to Aldi and Lidl as their primary market strategy while entering a foreign market.

TO IMPROVE ITS IMAGE OF AN UNDERCLASS DISCOUNTER IN THE U.K AND IN SWITZERLAND, WHY ALDI ENLARGED ITS PRODUCT RANGE AND OFFERED A HIGHER SERVICE LEVEL TO CUSTOMERS?

PROBLEMS AND RISKS ASSOCIATED:

Aldi had to depart from its hard discount strategies it had back there in its home country Germany. Of course they had to come up with new strategies to survive and to make profits in the new foreign market. When they entered the UK and Switzerland, they had to face competitions from the local brands already situated there. Also in UK, cheaper goods were looked upon as low in value and quality. Hence Aldi had to increase the prices of goods so as to attract the consumers and ensure that they sell quality products. Only recently they increased the price of milk again in September, 2012. They did this so as to breakdown the image of an UNDERCLASS discounter. Prices in the UK and Switzerland are almost two times of that in Germany. Aldi also did some advertising campaigns to attract customers. In UK they started offering wide options of meat products. The sales have doubled in the UK as of 2012 survey. Aldi also had to adapt their products to suit the customer needs. They did not sell German products; instead they relabelled them in Switzerland and also sold regional products to satisfy the customer demands and tastes.

This shows the importance of having and understanding strategies to be a winner in a foreign market.

RISKS- Since Aldi is breaking way from its image of a hard discount provider and changing its strategy to survive the foreign market by increasing its price range, it could lose its customers to Lidl. In foreign markets like the U.K and Switzerland, Aldi no longer stands as an example of hard discount strategy. They spend money on customer service, advertising campaigns, store building and designing following which increase the selling price of the goods. They now sell quality products at high price. They have started un-using the very basic strategy- selling at low prices for increased profits-for which they were known. Because of their changed image, they are at risk of losing their customers.

INTERNATIONALISATION OF LIDL- ‘FAST & PUSHING’ AND ALDI- ‘SLOW AND WELL- CONSIDERED’?

REASONS?

It is true that the internationalisation process of Lidl is ‘fast and pushing’ while that of Aldi’s is ‘slow and well considered’.

Aldi’s slow and considered approach is quite evident from the fact that it enters a foreign market with a gap of around 10 years. Aldi initially operated in Germany only. It moved to Austria only in 1967 i.e. seven years after its opening and success in the home country Germany. After ten years in Austria it entered the US market. This shows that Aldi first studies the foreign market, the scope for their growth, identifies the target consumers and come up with strategies before venturing into a foreign market. As the case study mentions, in Switzerland, Aldi first targeted German speaking regions of the country following which they penetrated their expansion.

Aldi is quite cautious before venturing into a foreign market as clearly shown by the examples above.

Lidl on the other hand is quite fast in their approach. They follow a sort of trial and error method. This could be seen by the way they entered Poland and Norway.

At times it worked for them, but at times it has also led them to huge losses (for e.g. in Norway)

In 2007, when they expanded to Poland, they were able to make huge profits as compared to the rival Aldi. This is because when Lidl entered Poland, there were lesser or no competition in the market and they were able to get a fresh start and attract customers with offers that were new for the Polish customers. On the other hand, Aldi had to face more competition as by the time they entered, the markets had matured and saturated with more competitors.

But this kind of adventurous venturing could also be harmful at times for example, in Norway in 2008; Lidl had to sell its stores to the local competitor Rema due to the failure of their strategies.

First of all Norway has a unique population density spread and a different geographic location.

Because of this the logistics and implementation became costlier and led to losses. The location of the shop was also seen as wrong by Werner Eversten (Head of Lidl, Norway). Also there were some internal management problems like, the top management officials kept changing which in turn affected the strategy and planning process of the company.

ADVANTAGES AND DISADVANTAGES OF ALDI’S STRATEGY.

WHICH STRATEGY DO YOU RECOMMEND TO LIDL IN TERMS OF ITS GEOGRAPHICAL PRESENCE UNTIL 2020?

Aldi is known for its well-considered approach. It still has more foreign markets other than in Europe as compared to Lidl.

Advantages:

Since they go for deep study of the market, the strategies required and the local demands of a foreign market, it works positively for the company as they are able to adapt to a foreign market in a better manner. Venturing into markets like the US added to their profits because they were first to offer discounts and they experienced the First mover advantage. They had fewer competitors there. They work on the theory of economies of scale and penetrate into new markets where this is a new and a strategy never heard of. They avoid risks by carefully studying and analysing the market.

DISADVANTAGES:

When Aldi entered foreign markets, it had to change its strategies to adapt to the customer demands of that country. As a result it had to bring in customer service schemes, advertisements, pamphlets, store designing which increased their expense. They had to increase their prices to cover for this thus shifting from their hard discount strategy. Due to this they could lose the customers in the lower income strata of the society. They will have to face the common and obvious risk of internationalisation i.e. understanding cultural differences (like in the UK) and facing the local competitors.

Strategy for Lidl:

Lidl has always entered foreign markets in haste. It never considered the market demands or analysed the scope or the strategies. This could do harm to the company like it did in Norway where they had to sell off around 50 stores. They open a large number of stores simultaneously in a foreign environment which is quite risky and could lead to huge losses and debts. They could have analysed more on the cultural aspect and customer tastes/preferences of the people that exist in a foreign market.

They could open a few outlets initially to study the level of acceptance of their store in the foreign market and then go for gradual increasing in number of stores. They could also analyse a foreign market before they enter so as to adapt well into the market and have better strategies. They could consider the location and geography of the country before they venture to avoid huge risks.

Lidl could also consider entering emerging markets like India, China, and Brazil where there is a huge market for discounted items. If they could have a well-planned strategy before they enter these markets, they could make huge profits. For example, in India, there is a large young population who are attracted to foreign store outlets and also middle-class population that prefer items in low prices. There is a promising and potential market for Lidl in India and also in China. They could have to deal with the cumbersome regulations by government but with perfect implementation of strategies, they could be a huge success there.

Great work Sarika. 96% A

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