#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.
August 3, 2017 @ 10:09 pm
Lidl’s experience in Norway is interesting and appears to have been an issue of product mismatch. The product they were selling, both the actual store and the brand offerings inside, were unpopular and did not fit with the cultural and social customs of Norway. Coming to the United States, Lidl may encounter some of the same issues. Consumers in the US like stores that offer a variety of options in one place, not just one brand or company product. Especially for a store like Lidl that sells a vast variety of products, the absence of numerous brand choices may hurt them in the market here. Unless they can establish a niche market like Costco, who sells branded products, Lidl’s strategy may fail them. Competition is also extremely fierce in the US supermarket arena. Entering an already saturated market could bode ill for Lidl, especially considering that its competition, Wal-Mart and Kroger on the East Coast, have already begun measures to counter the new entrant. Lidl only out-prices Wal-Mart by 2%, which isn’t enough to draw customers away from Wal-Mart, however, Lidl out-prices Kroger by 17%, which will definitely be a competitive edge in the market. The issue with that is that Kroger only operates on the East Coast and won’t be a competitor in other regions like Wal-Mart will. Wal-Mart has begun dropping prices in response to Lidl’s entrance and also building up their own brand Great Value. However, Lidl has successfully countered Wal-Mart in the UK and proven they are capable of establishing themselves against the supermarket giant.Overall, whether Lidl is successful or not will depend on its ability to establish a niche for itself in the market that sets it apart from competitors.
For further information:
http://www.supermarketnews.com/retail-financial/walmart-deftly-defends-against-lidl-threat-analyst
https://www.forbes.com/sites/timworstall/2017/08/03/coming-to-the-us-soon-aldi-and-lidl-undermine-walmarts-position-in-uk/#117b7cbe2369
September 15, 2017 @ 5:32 am
It’s no secret that during the financial collapse of 2008, the German discount chain Lidl gained market share in Europe due to their discount model. While according to research by Benjamin Hennig and Danny Dorling from Oxford University, middle income across England has declined from 65.5 percent in 1980 to 48.4 percent in 2010. (Henning & Dorling, 2016) Meaning, disposable income amongst Europeans has been slowly declining for decades which contributes to the popularity of low cost business propositions. So why did Lidl fail miserably in Norway if they’ve been so successful everywhere else in Europe?
Based on their recent success in Europe and confidence in their business discount model. Lidl chose an unsystematic entry into Norway. Given hindsight is 20/20, if Lidl would have chosen a systematic approach and looked at acquiring market research prior to entry. Would Lidl still have entered Norway? For instance, Norway is already dominated by four major domestic retailers and Norwegians prefer domestic products over foreign products according to TGS global (Norway: Buying and Selling, 2017). Norwegians are also price sensitive and value brand recognition along with quality over price. Also locations are huge in European markets. Could Lidl secure spots prior to entry, in locations with high foot traffic given the popularity amongst Norwegians to use public transportation over driving? See where this is going….
According to Apfelthaler’s Model, firms should consider using a logical approach before entering a foreign market in order to increase their chances of success. Those five steps are: 1. Corporate Readiness, 2. Product Readiness, 3. Target Market Selection, 4. Entry Mode Choice, 5. Implementation and Adjustment. Lidl entered Norway with standardization strategy instead of localization. Then realized Norwegians didn’t value the foreign discount chain’s business model, and tried adjusted their approach to localization. Only it was too late as the article mentioned. Could market expansion into Norway have been prevented if Lidl utilized a logical entry model, or at the very least, taken a much slower expansion into Norway? I believe so and I believe Lidl would have started expansion much slower had they properly analyzed Norwegian culture.
References
Apfelthaler, G. (2017, September 14). Strategy in a Global Context (2). Retrieved from Cal Lutheran Blackboard : https://bblearn.callutheran.edu/bbcswebdav/pid-778241-dt-content-rid-3502355_2/courses/61661/EMBA500-2-%28Process%20and%20Corporate%20Readiness%29.pdf
Henning, B., & Dorling, D. (2016). POVERTY AND WEALTH IN ENGLAND AND LONDON 1980-2010. Retrieved from Londonmapper: http://www.londonmapper.org.uk/analysis/poverty-and-wealth-1980-2010/
Norway: Buying and Selling. (2017). Retrieved from TGS-Global: http://www.tgs-global.com/23/276/norway?page=selling-and-buying
September 17, 2017 @ 4:45 am
It’s difficult to imagine that Lidl didn’t conduct a thorough analysis of the Norwegian market before stepping into the country, but foresight always seems to come with that challenge. As alluded to in the article, there are some parallels between Lidl’s experience in Norway and Wal-Mart’s experience in Germany. Like Wal-Mart, Lidl faced political challenges that had a material impact on where the company was able to locate its retail outlets. Labor union related issues resulted in considerable operational challenges for the two companies and affected the promotional aspects of its businesses in the societies they were expanding to. Additionally, strong competition prevented both companies from maintaining their price oriented competitive edge that allowed them to succeed in other markets, and the product and stores layout themselves received a lukewarm reception from consumers (Subhadra, Dutta, 2004).
As pointed out in an earlier reply, well entrenched competitors such as Wal-Mart and Costco, as well as ever increasingly strengthening online retailers may challenge Lidl’s ability to utilize its low price approach. Similar to the Norwegian example, economic growth in the United States may have an impact on consumers’ willingness to try unfamiliar brands to save a few pennies. Finally, while it is a divisive subject, societal concern with globalization has received considerable attention as of late. As a result, consumers may respond with a lukewarm reception of an unfamiliar foreign brand if positive branding elements that can be associated with the products are limited. It’s still early in Lidl’s US expansion, and the company likely gained experience from their expansion to Norway, but like many successful retailers have experienced, competing on a purely price oriented approach comes with its fair share of challenges.
Subhadra, K., Dutta, S. (2004) Wal-Mart’s German Misadventure. ICMR Center for Management Research. Hyderabad, India.
February 11, 2018 @ 12:04 am
Based on the article, it is visible that Lidl had trouble with the target market selection when they decided to entry the Norwegian market. The company didn’t do a complete evaluation to learn about consumers and their preferences. The risks of entering the Norwegian market seemed to be higher than the opportunities, but I believe the company was misled by factors such as having fewer competitors. They probably didn’t consider the efforts they would have to make to exceed consumers expectations in order to make them choose the new retailer rather than what they were already used to.
Apparently, Lidl’s plan for the US market is to offer a large selection of private label products and focus on healthy choices at a lower price. This sounds like a great idea, but after seeing how Fresh & Easy did in the west coast, it is hard to see Lidl becoming successful in such a competitive market that is being attacked by the online generation. The company might have lacked the research on choosing the right market entry mode at this time. It is no news that the online market is taking over the traditional retailers, and big retailers like Walmart are having to close doors and focus on online sales.
Enlarging its mix of private-label brand names might after all not be enough to succeed in the US market.
References:
Lidl’s U.S. Expansion & European Localisation Mistake – EVS Translations. (2017, September 26). Retrieved February 10, 2018, from https://www.evs-translations.com/blog/lidl-localisation-mistake/
March 15, 2018 @ 8:00 am
I am really interested if the Lidl endeavor in the USA will work out. As mentioned in the article there have been several reasons why they failed in Norway. The company was definitely ready to enter foreign markets in Europe since it was already present in several other European countries. In terms of product readiness, I think Lidl made some mistakes. I remember when Lidl entered Austria and at the beginning, their product was not very popular. They imported many products from Germany and many costumers did not like. It took a while until they adapted their concept and sold more Austrian products. As soon as that happened, stores immediately became more popular and they continuously gain more market share. The learning curve was also very slow but their patience payed off. Lidl might have underestimated the difference between the Norwegian market and the markets in Sweden and Finland where they entered first. I would also say that especially at the beginning there is never room for error. Once you have a bad reputation it is hard to change people’s minds. In my opinion, the product might also work in Norway but a more logical approach would have been necessary.
July 5, 2018 @ 8:55 pm
The example of Lidl shows very demonstrative that we cannot expect from businesses that are successful in some known markets that they are automatically successful in other foreign markets. Especially when a company is completely new in a market, it gets attention from all sides and it must be very carefully in terms of their market action. That failures Lidl has made were very painfully, I mean you cannot pay your employees bad in such a situation. When people hear from such circumstances they will reject Lidl in their minds immediately. This can ruin your reputation. Even the wrong estimate of the customers and their willingness to pay wasn’t a good choice at all, Lidl follow the same strategy like in Germany with extremely low prices. This shows very clear that a successful strategy doesn’t have to work in other countries. I’m really excited how Lidl is doing in the USA and if they have learned something from their experiences in Norway because the customers in this market are completely different in their buyer behaviour than the European ones in my opinion.
September 27, 2018 @ 4:40 am
This was a very prevalent story to me since my team and I did a case study on Aldi and its entry into the United States. Lidle and Aldi are competitors and have had their fair share of successes and failures. Both have experienced the internationalization strategy as explained by Dr. Gerhard Apfelthaler which includes corporate readiness, product readiness, target market selection and entry mode choice. In the case of Lidl entering Norway they did not do their homework and may have assumed Norway would have been like any of the other European countries they were successful in. Per the article, Norway was an oligopolistic structure and already had four dominate rivals. These rivals already shaped consumer perceptions causing Lidl to have a bad reputation as they continued to ignore labor unions, low salaries for employees, poor working conditions and micro management styles. Another important factor is Lidl’s timing. They entered Norway in 2004 as the country experienced a good economy. This would be ripe for high consumer power (as applied by Porter’s 5 Forces), consumers did not see the need to “pinch their pennies” and save on discount groceries. All combined they made a classic target market selection mistake.
As in my team case study this Lidl story is very similar to the Aldi failure in Greece. Aldi attempted to open up shop in Greece in 2008 at the beginning of the country’s financial crisis. Their choice in timing was bad. Similar to Lidl, Aldi closed its doors and sold off its properties in less than two years making a several billion dollar mistake due to them not doing their homework. In Greece, Lidl had the strong hold and Aldi tried to catch up with no success.
Today, Aldi is very successful in the United States and is ranked as the third up and coming grocery chain. Aldi has begun to expand towards the Rockies and West Coast opening its first stores in California this year (2018). It will be very interesting to see the outcome of Lidl and if it will succeed. Will Lidl be too “Lidl” too late?
February 9, 2022 @ 8:28 pm
Lidl clearly did not do enough research before entering the Norwegian market. In Norway the people are very aware of where the product they are buying comes from and will go out of their way to buy Norwegian produced products. Norwegians are nationalists and pride themselves in having good working conditions and good salaries to all workers regardless of occupation. Bringing in foreign products probably in different shapes and sizes than Norwegians are used to would be hard to sell regardless of the price. Norwegians are what they call in their language “vanedyr” which means they stick to their habits. There are for example only 2 big producers of milk and people would stick to these unless some small farm in Norway decided to produce milk where as people would support their little business. The size of products are often small, and are prided with quality over quantity in contrast to other cultures. I am curious to see how they will do in the US as Americans do want bigger and cheaper and Lidl might do better with that kind of market and consumer behavior.
March 6, 2023 @ 9:40 pm
Like most failures, I see various points coming together here as well. Firstly, there is the adaption to local preferences. What’s called “know your audience” in public speaking is just as true when you enter a new market. Lidl was missing the same research about local consumer behavior as Walmart when they entered Germany. Offering what people want, shaped by the existing customers, seems essential to get a foot in the door. Second, there seems to be tough competition already through the four established retailers and no public interest in changing that as we can see through e.g., rejection of local governments. Thirdly, treating employees poorly certainly does not help you get a good reputation. This aspect as a foreign company that aims to enter the market potentially harms the general reputation and makes the brand not enjoyable. Last but not least, the timing wasn’t playing for Lidl. When your value proposition is price and people do not care too much about saving, the motivation to change the habit is low.