Foreign Market Servicing Strategies of Lidl

opposed Market Servicing Strategies of LidlLidl is one of the leading global give the sacker and owns round almost 9000 stores in Germany and exclusively over Europe. Lidl has beaten its master(prenominal) adversary Aldi. Aldi is already favored in the unify States.The latest history of the company Lidl was clouded by the placard s sufferdal in 2008. This grime damaged their image. In the matter of the important topic Corporate brotherly Responsibility Lidl started a project called ECO2LOGISCH. This project is intimately building stores that are energy-efficient and sustainable. In addition the company sells Fair-trade products.The nutrient sell persistence in Germany had a moderate emersion in the past and the forecast for the labor sides well. The category of super trades, hyper feedstuffs and discounters has the tallest mart touch in the nourishment sell attention. The buyer and supplier antecedent is moderate as well as threats of in the raw entrants and substitutes are moderate. The rivalry in the industry is very strong.The US food sell industry in comparison to the German one has a strong growth and the forecast is not less significant. The category of super trades, hypermarkets and discounters has a major market share of 80.2 %. With a gross Domestic Product of $ 14.2 trillion in 2009 the Unites States are the second largest economy after the European Union. at that place is a very high diversification of income and thereby a problem of scantness occurs in the United States.With predominating Strengths and Opportunities after the SWOT outline, the United States satisfy all requirements to become the unseasoned market Lidl should puff up to.Lidl has self-control, location and internalization advantages and thereby Foreign Direct Invest is the best mode of entry. Given that Aldi used Greenfield investment successfully to enter the US market in 1776 and Lidl did use the same strategy to expand to the European markets, Greenfield investment is the appropriate strategy to enter the peeled market in the United States successfully.IntroductionIn times of globalization and world(prenominal) expansion Lidl, who is one of the leading global discounter, should speak out about an expansion overseas.The following report should discuss if the United States are the right country to expand to and which mode of entry Lidl should use for the expansion.In the first steps the company Lidl itself result be crushd with a hand-to-hand look at the Corporate Social Responsibility. by and by that the German food retail industry lead be examined. Porters Five Forces Model will be used for this. The next step is to analyse the food retail industry in the United States. For this the industry itself will be investigated and the PEST analysis will give a closer look at the United States. The SWOT analysis will demonstrate the Strengths, Weaknesses, Opportunities and Threats for Lidl by entering the US market. Afterw ards the mode of entry will be discussed and the remainder will give a final answer to the question, if the United States are the right country to expand to.The company LidlCompany overviewLidl is a German discount chain and is part of the Schwarz Beteiligungs GmbH (Holding company). The Schwarz group also owns the consumer markets Kaufland, KaufMarkt, Concord and Handelshof. The history of Lidl can be traced back to the beginning of 1930. At this point in time Josef Schwarz got commonplace partner of the Sdfrchte Grohandlung Lidl Co. He restructured it to a wholesale business which was accordingly destroyed in 1944. After ten age the business was rebuilt and in 1972 the headquarter was relocate to Neckersulm. After the dead of Josef Schwarz in 1977 his son Dieter Schwarz assumes full responsibility for the business. Dieter Schwarz bought the naming rights from Ludwig Lidl and from this point on the success started. Lidl first expanded in the region of Neckersulm and then to t he whole republic. After the success in Germany, Lidl started to expand internationally. Lidl instantaneously owns round about 9000 stores all over Europe and thereby has more stores than its main competitor Aldi (Langer, 2004 Wikipedia Lidl, 2011).Corporate Social ResponsibilityDue to the fact that Lidl is not a public company, it is very hard to find any information about Lidl itself. In the history of Lidl it was always the typesetters case that Lidl did not want to show any information about the company. For this flat coat Lidl got the nickname Geheimniskrmer (mystery monger) (Langer, 2004).In spring 2008 Lidl got involved in a big scandal in Germany. Lidl was accused to observe their employees. This scandal damaged the image of Lidl. Lidl Germany has apologized for this incident and has assured that they will promote immediate moves to forestall any of these incidents to happen again (Byrne, Skilly, 2008). After this incident, Lidl reformed the conditions of employment.A ne w project is called ECO2LOGISCH. This is a new store generation. The stores will be energy-efficient and sustainable. For example the new stores will be 100% heated using the waste heat from the refrigerated sections. Lidl plans that from 2010 on all Lidl-stores should be build ECO2LOGISCH. With this project Lidl is the first food retailer in Germany who sets sustainable building helpings engineering as a standard (Lidl ECO2LOGISCH, 2010).In addition Lidl sells Fair-trade products and has somewhat social projects like a football club for kids.The food retail industry in GermanyThe food retail industry includes the sales of food and beverages. In Germany the category Hypermarkets, Supermarkets and Discounters has the highest market share of 47.6% (see Appendix 1).In 2009 the industry had a growth of 2.3 % and a value of $ 234.8 billion. In the past the growth was moderate with an average of 2.1 % (see Appendix 2). The forecast for the industry looks good. The growth should be stead y and in 2014 the industry will chip in an expected value of 265.5 billion (Datamonitor (a), 2010, p. 10).With the help of the Porters Five Forces Model the food retail industry will be analysed in the following. In the analysis the buyers will be the end-consumer and the suppliers will be food manufacturers, farmers, and agricultural co-operatives. The players in this analysis will be supermarkets, hypermarkets and discounters.Buyer powerThere is one important change in the consumers behaviour to which the retailers have to respond to. Nowadays the importance of health gets bigger and bigger. The convenience food becomes less important and consumers are more elicit in fresh and healthy food.Another important fact is the price. Because there is a wide trope of large retailers in Germany the consumer faces no switching costs and thereby the retailers have to have an attractive price scheme. All in all the buyer power is moderate (Datamonitor (a), 2010, p. 15).Supplier powerThe bi g German retailers often have a large range of suppliers. With this strategy the retailers ensure stability. They lift possible delays in deliveries and price fluctuations. In addition to that some large retailers have started to sell own brand products. These two facts weaken the supplier power in the German food retail industry. Overall supplier power is moderate (Datamonitor (a), 2010, p. 17).New entrantsIt is not easy for new entrants to enter the market because of the bellicose marketing and pricing schemes of the large retailers in the industry. Nevertheless there are low entry and exit costs in the food retail industry and the changes in consumers behaviour gives new entrants a possible niche to enter the market successfully. Besides the low growths rate makes the industry not that attractive to new entrants. In conclusion the threat of new entrants is moderate (Datamonitor (a), 2010, p.18).SubstitutesThe only real substitute to the food retail is the food service represent ed by prompt foods restaurants, sit-down restaurants and delivery services. But for consumers the food service is more a complement than a substitute. A more direct substitute are individuals and families who domesticate their own food. This is no longer used nowadays but in the long term possible because of the changes in the consumers behaviour and the threat of economically and politically instability. The threat of substitutes is therefore weak (Datamonitor (a), 2010, p.19).RivalryThere exists a high competition in the food retail industry. Main reasons for this are the not real switching costs for the consumers. The similarity in the basic products of the large retailers pushes them into a competitive pricing scheme. This leads the price wars. These are encouraged by the consumers who are now comparing more and more. They have a look on special offers and the lowest price. The German food retail industry has a lot of competitors. accordingly in a conclusion rivalry is stron g in this industry (Datamonitor (a), 2010, p. 20).The United States for expansionSince Lidl already expanded to whole Europe it is time to think overseas. Aldi, one of the main competitors, expanded successfully to the United States in 1976. Lidl already beat Aldi in Germany and Europe. Lidl has more stores all over Europe and has overtaken Aldi in the rankings. So the existence of Aldi in the US food retail market is no real threat for Lidl.The food retail industry in the United StatesThe US food retail industry in comparison to the German has a strong growth. The total revenues in 2009 had a value of $ 859.1 billion and the average growth rate in the years from 2005 to 2009 was 5.3% (see Appendix 3). The forecast is not less significant. By the end of 2014 the US food retail industry will have an expected value of $1,043.1 billion (Datamonitor (b), 2010, p. 10).In the US the category Hypermarkets, Supermarkets and Discounters has the highest market share of 80.2 % (see Appendix 4) . Worldwide the market share of the US food retail industry is 19.8 % billion (Datamonitor (b), 2010, p. 11).All these facts make the US food retail industry attractive for Lidl to expand to. To have a closer look at the real attractiveness of the US market for expansion a PEST analysis of the United States will be proceeded in the following.PEST analysis of the United StatesIn this section the political, economical, social and technological environment of the United States will be analysed.Overall the United States are one of the strongest powers worldwide since more than 50 years. Politically the United States have a strong spatial relation. In 2009 the democrat Barack Obama displaced the republican George W. Bush. Barack Obama was inheriting a poisoned chalice because of the financial situation and the great debates about the military operations in the Iraq and Afghanistan. Nevertheless the US has a great global influence and a strong democratic setup (Datamonitor (c), 2010).Wit h a Gross Domestic Product (GDP) of $ 14.12 trillion the United States were the second largest economy in the world in 2009 after the European Union (CIA The World Factbook, 2010). In the years before the 11th of September 2001, the United States had an economical boom, after that date the growth slowed down and they felt into a recession. The congress passed bills to stimulate the financial market in 2008 and 2009. Because of this the public dept in the United States increased from 39.7 % in 2008 to 52.9 % of the GDP in 2009 (Datamonitor (c), 2010).The United States are facing a rapidly aging population. This can lead to a decreasing economic growth and thereby to rising tax rates and shortages in labour. The US have a very high diversity in the distribution of income. The Gini index was 45 in 2007 (CIA The world fact book, 2010). 1 per cent of the population belongs to the upper class and in 2009 these nation owned 37.1 per cent of the entire property of the United States (Wiki pedia Vereinigte Staaten, 2010). However, the United States have a remarkable education system and Barack Obama passed a new health service reform in 2010 (Datamonitor (c), 2010).On the technological front, the United States are a world leader in adapting and applying technology and innovations and they will stay in the position in the near future. But there will be a threat of competition in this sector because of the continuing process of for example chinaware (Datamonitor (c), 2010).SWOT analysis of the company LidlThe SWOT analysis brings together the analysis of the environment and the company. It identifies the Strengths, Weaknesses, Opportunities and Threats. SWOT is the basis for the strategy development of a company. The main facts of the Strengths, Weaknesses, Opportunities and Threats will be discussed in the following. The whole SWOT analysis is provided in Appendix 5.Lidl has a high market share in the card-playing growing market segment of the food retailers. It has become a global player due to the fact that Lidl expanded successfully to Europe and owns round about 9000 stores. After the success in Europe there are no more obstacles for an expansion to the United States. Another important Strengths is the very good pricing which attracts many consumers.The main Weakness of Lidl is the damaged image because of the observation scandal and the discussion about minimum wages, which affects nearly every discounter. Additionally the low customer loyalty represents other main Weakness. This is an issue because of the low switching costs for the consumers because of the high competition in the food retail sector.An Opportunity is that the category of supermarkets and discounters has a markets share of 80.2% in the food retail sector in the United States. Another Opportunity is the existing poverty in the Unites States. Poor people are more interested in low pricing products.The main Threats are the competitors on the US food retail market. There is W al-mart, who now starts to open smaller stores like in the store model of Lidl and there is Aldi, the main competitor in Germany. Aldi is a Threat and an Opportunity. Lidl already beat Aldi in the German and European market and Aldi was successful on the US market by using the same discounter model like Lidl. But Aldi entered the US market in the 70s and is now incorporated and accepted from the US consumers. This is a challenge for Lidl.In a conclusion the Strengths and Opportunities predominate and Lidl should start the expansion to the United States.Choosing the mode of entry to enter the US marketAfter decided that the United States are a good market to expand to, it is now time to think about the mode of entry. There are various modes of entryExportingInternational LicensingInternational FranchisingSpecialized modes (e.g. contract manufacturing, management contracts)Foreign Direct Investment (Greenfield investment, Acquisition strategy, Joint Venture).Dunnings eclectic Theory gives a good framework to decide which mode is the right one for the company and the market it wants to expand to. Dunning developed three conditions which a sozzled should be satisfying.Ownership advantage The firm has to have some special advantages to compete with the foreign companies. For example a good brand name, special technology, know-how or a unique product. In this case exporting would be the mode of entry.Location advantage It has to be more benefiting to expand to a foreign market rather than expand in the home market. For example lower labour costs. If the ownership advantage and the location advantage apply contractual arrangements like licensing, franchising or alliances are the best modes of entry.Internalization advantage There has to be a higher profitability by controlling the activities on the foreign market on their own rather than recruit a local company to provide all the important services. For example lower exchange rate risks. In the case that all three conditions are satisfied Foreign Direct Investment would be the best mode of entry (Griffin, Pustay, 2010, p. 196).Lidl as a retailer has the ownership advantages like a bargaining power in purchasing and a special supply chain. Another fact is that exporting would be no election for Lidl because a retailer sells products it buys from suppliers. It would be meaningless to export the products again.There are location advantages as well. The German food retail market is concentrated with a high level of competition. Hence there is not much space for further expansion. The market in the United States is a big market and offers complete space to expand to. Even though there are some main competitors. The entry and exit costs are low. For a retailer franchising harbours some dangers. For example it is difficult to legally protect the innovations a retailer is making. Franchising has indeed lower costs but the firm has also a lower level of control.Internalization advantages occur when company-specific advantages cannot be achieved on the foreign market via franchising or similar cooperation forms. This is given because of the facts mentioned before (Borgstrm, Hertz, Nyberg, n.d.).In summary Lidl satisfies all three conditions and for this reason Foreign Direct Investment is the best mode of entry for Lidl. Now Lidl has the choice between Greenfield investment, joint venture or acquisition. By having a closer look at Lidls past expansion in Europe and the mode of entry Aldi chose in 1776, Greenfield investment is the best solution for Lidl. The company also entered the new markets in Europe via Greenfield investment and Aldi did the same in the United States and it was successful for both.ConclusionThe food retail market in the United States offers a good opportunity to expand to. The market has a strong growth and the PEST and SWOT analysis acknowledge the choice of the United States for a new market for expansion.As a conclusion to Dunnings theory, Foreign Direc t investment and more precisely Greenfield investment is the best mode of entry. Exporting, Licensing and Franchising do not offer Lidl a good business. These modes of entry are not appropriate for a retailer and in addition Lidl would lose parts of their revenues.Due to the fact that Lidl is not voluntary to disclose any internal information, Acquisition or a Joint Venture do not represent a possible choice, even though both possibilities have low fixed costs. Furthermore the companies could be competitors on another market and no company wants to share information with a possible competitor.Greenfield investment is the best solution for a successful expansion to the food retail market in the United States.AppendixAppendix 1 Germany food retail industry by categories % share, by value, 2009.13Appendix 2 Germany food retail industry value $ billion, 2005-09..13Appendix 3 United States food retail industry value $ billion, 2005-0914Appendix 4 United States food retail industry by c ategories % share, by value, 2009..14Appendix 5 SWOT analysis of the company Lidl15Appendix 1 Germany food retail industry by categories % share, by value, 2009Source Datamonitor (a), 2010.Appendix 2 Germany food retail industry value $ billion, 2005-09Source Datamonitor (a), 2010.Appendix 3 United States food retail industry value $ billion, 2005-09Source Datamonitor (b), 2010.Appendix 4 United States food retail industry by categories % share, by value, 2009Source Datamonitor (b), 2010.Appendix 5 SWOT analysis of the company LidlStrengthsWeaknessesHigh market share in a fast growing segement (discounter)Global playerVery good pricing (always offers the lowest price on the market)Very good store locations (near housing areas, good fascinate connections, good parking facilities)Fast reaction to changes in the market conditions (flexibility is very important in a high competition sector)Damaged image (oberservation scandal and dicussions about minimum wages)Dependence on discouter m odelLow customer loyaltyExit from the Norway market because of low successChanging consumer behaviour (healthy living)OpportunitiesThreatsAfter successful expansion all over Europe its time for overseas expansionSignificant market for supermarkets and discounters in the USExpansion of the product range (more healthy food)Poverty problem in the US leads to higher demand of low pricing productsAldi already had a great success on the US market (same discounter model)Only focus on low princing productsExisting competitors in the US food retail market (Wal-Mart, Aldi)Limited success of food retailer Tesco after entering the US market in 2007Source Self made with the help of Bord Bia, 2008 Jiroutek, n.d.