Originating in Germany, Lidl is a global discount supermarket chain, with over 10,000 stores across Europe and America. Opening its first store in the UK in 1994, the business now has over 760 stores, 13 regional distribution centres and 22,000 employees nationwide as of 2019.
It has slowly become one of the UK’s leading food retailers, ranking 4th most favoured supermarket in the UK in 2018 by consumers. The emergence of discounter stores such as Lidl has arguably revolutionised the way Britain shops, disrupting the once conventional supermarket sector and piling pressure on the original giants of Tesco, Sainsburys and others.
There's still a lot of room for growth and competition remains fierce, so what strategic considerations should be on Lidl's shopping list? We take a look...
PESTLE Analysis for Lidl
The UK supermarket sector is dominated by the following key trends:
- Consumer spending attitudes are shifting, with 78% people identifying as ‘savvy’ shoppers according to research by Mintel. These are customers who are seeking more value for money and searching to find best deals that provide not just financial, but emotional gain too.
- Food expenditure as a share of total expenditure is forecasted to decline by 2.2% by 2030 in the UK in the coming years. Competitive promotions and deals will be rife in trying to attract consumers and their decreasing budgets.
- There is a heightened awareness surrounding sustainability and environmental consciousness of brands. 46% of consumers believe limiting plastic use is the most important consideration a UK grocery retailer should take.
These factors, along with several others pose different opportunities and threats to the future of Lidl’s success. Although some factors may coincide and complement Lidl’s original business model, others pose risk and may require Lidl to adapt and take action imminently.
- A no-deal Brexit means the UK will have to impose a 22% average food import tariff. Border inspections of products and documentation requirements also implemented
- The Competition and Markets Authority (CMA) inquests into UK supermarket sectors mergers and acquisitions
- Increased costs and product shelf-life shortened as food will take longer to arrive. Supply chain efficiencies also at risk
- Asda & Sainsburys merger would’ve meant a market share of 29%, imposing both competitive and pricing pressure on the industry
- Food expenditure as a share of total expenditure is forecasted to decline by 2.2% by 2030 in the UK
- UK Inflation rates are back on the rise since 2015, recorded at 2.3% in 2018
- Competition will be rife in regard to rolling out sales promotions to attract customers with tighter budgets
- Inflation will result in product prices naturally increasing across whole industry
- Consumer spending attitudes are changing with 78% people identifying as ‘savvy’ shoppers
- Rise in alternative diets trends has seen 1 in 8 Brits turn to Vegetarianism & Veganism and 21% identifying as ‘Flexitarian’
- Pressure to adapt and incorporate enticing promotions and deals into store
- Pressure to cater for such changes and gain loyalty through introducing own vegetarian/vegan ranges
- Emergence of e-commerce has led UK to become 2nd largest online grocery market worldwide with it forecasted online purchases will account for 10% of all grocery shopping by 2023
- In-store technological innovations like self-checkouts, scan as you shop and smart-shelves
- Health and safety laws
- IP laws around copycat brands
- Employment law and minimum wage alterations
- Increased awareness surrounding sustainability and environmental consciousness of brands
- Emphasis on sourcing produce and stock from local suppliers.
Five Forces for Lidl
Porter suggested there are five main forces that shape competition at a strategic business level, allowing Lidl to identify the key areas of competitiveness within the UK supermarket sector. The industry does in fact experience intense competition that will incur different impacts on Lidl for example:
- Low product differentiation exists between each supermarket. This drives industry rivalry whereby Lidl must find innovative ways in which they can sell same products better than competitors.
- Threat from customers is prominent due to large availability of choice within the market. Again, Lidl must compete with rivals to win the choice of consumers. However, there low-cost positioning may create an advantage, becoming a more attractive option in comparison.
- Suppliers ability to bargain within the industry due to market density may have detrimental impact on Lidl if they fail to ensure relationships are strong and secure, preventing the risk of suppliers potentially pursuing better agreements.
In order for Lidl to counter the highly competitive environment it sits within, they must aim to differentiate their offering, creating value to their customers by doing so. Arguably, their low-cost, no-frills offering succeeds in already doing so to a certain extent.
Industry Rivalry: High
- ‘Big 4’ market dominance
- Discounter challenger Aldi
- Low product differentiation
Threat from Newcomers: Low
- Cost of entry high
- High level of competition
- Gaps in the market
Threat from Substitutes: Medium
- Introduction of home delivery recipe kits such as Gousto and HelloFresh
- Fresh food markets
- Local shops
Threat from Suppliers: Medium
- Number of suppliers in the sector is highly saturated
- Suppliers ability to bargain
- Low differentiation of suppliers’ offerings
Threat from Customers: High
- Large availability of choice
- Lower switching costs involved
- Customers aim to seek best deals
- Customers seek loyalty benefits
- Customers tied to particular brands
SWOT Analysis for Lidl
- Value for money positioning
- Strong supplier networks & relationships
- Large distribution network
- Own brands and private labels
- Customer satisfaction
- Brand perception of cheap and basic
- Lack of Valuable consumer experience
- Low margins
- Minimal consumer intelligence data
- Savvy shoppers seeking cost savings
- New market segmentations
- Geographic expansion
- Retain new and existing customers through loyalty benefits
- Exploit sustainability leader gap
- Loyalty schemes and data access
- Competitive market with new stores nearby
- Price war
- Competitors offer same cost advantage
- Customer availability of choice in market
- Currency fluctuations and economic environment
Strategic Goals & Options for Lidl
Based on the above analysis three example goals for Lidl could be:
- Increase Market Share by 6% in the UK
- Increase Customer Loyalty in the UK by 10%
- Improve Lidl’s Brand Perception in the UK by 13% to reposition as more sustainable.
With the aim to achieve all of the objectives above, 3 alternative marketing strategies could be used:
- Flanking Attack – through promotional activity distinguishing brand attributes that Lidl leverage over competitors.
- Product Development from Ansoff- introducing a loyalty initiative.
- Brand Differentiation from Generic Strategies – deliver thought leadership through a sustainability integrated marketing plan.
There's a huge amount of opportunity in the UK for Lidl given their market position and the increasing sophistication of bargain hunting customers. With a bit of focus, there will be a lot of growth ahead.