#126 German Lidl between Norway and the US

Only a couple of weeks ago, German supermarket chain Lidl opened its first stores in the United States (in North Carolina). With this, the company that has based its reputation on value and low prices has not only expanded into a new country market, it has also joined the ranks of many other international retailers such as Wal-Mart or Carrefour that have stepped into unknown foreign territory – often with mixed success. So far, with the exception of Hong Kong, Lidl has limited its international activities to other European countries where it is practically everywhere. Everywhere, except in Norway.

In 2004, Lidl entered the Nordic country with 10 stores and with plans to expand to about 100 stores within a few years. One year later, their market share was only at a meagre 1 percent, and by 2006, Lidl only operated 51 of the 74 outlets they should have opened according to their own plans. After another two years of trying, Lidl finally announced in March 2008 that they would sell all their stores and entire operations to competitor Rema 1000 and cease all operations in Norway. Naturally, the question we need to ask is: What went wrong? As usual, it has been a multiplicity of reasons that contributed to Lidl’s failure. Let’s start from a macro view of the Norwegian retail landscape. Over time, like in many countries, the Norwegian retail industry had a more or less oligopolistic structure with only four main players – NorgesGruppen, Reitangruppen, Coop and ICA – controlling 99 percent of the market. These four players had a strong grip on the market, and shaped conditions in the market as much as they had shaped customers’ perceptions of what matters in supermarket retail. That means that for a new entrant, there is virtually no room for error. Unfortunately, errors started to add up right from the beginning. Lidl had a reputation for ignoring labor unions and giving their employees less than the royal treatment with their alleged low salaries, poor working conditions and close supervision of workers. Other than in Germany, where the extreme low-cost segment has about 30% market share, Norwegians didn’t particularly care for Lidl’s sole value proposition of low prices for their own private label products (while being undercut by their competitors on most other brands). They were perceived as an unfriendly foreign entrant that stocked unfamiliar items, built unsightly structures, and sent profits out the country. Besides, Lidl’s choice of timing was off – 2004 was a good year for the Norwegian economy, and the majority of consumers did not see the need to save pennies on groceries. In addition to their standardized approach to the product portfolio and pricing strategy, Lidl also struggled with their distribution. When entering a new market, Lidl has a tendency to build as many stores as possible, as quickly as possible. However, when entering Norway, Lidl struggled to find suitable land in chosen locations, with some of their proposed sites having been rejected by local politicians.

The media readily picked up on Lidl’s poor reception and so all they received was skepticism and negative press coverage. In the end, Lidl learned, but their adaptations to the Norwegian market were piecemeal and the learning curve was too slow – a good case of too little, too late. And so, in 2008, Lidl left Norway and with that it left an embarrassingly empty spot on their map of European markets.

Let’s see how they’ll do in the United States.

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