Master the Game of Retail - E2: The Winning Strategies of Lidl, and Aldi.

As we continue to analyze retail strategies, we shift focus from Big Box retailers to the hard discounters that have revolutionized the European and US markets. The German giants, Lidl and Aldi, possess an entirely distinct strategy from the likes of Walmart, Target, and Costco. Yet, they've successfully carved a unique niche in the cutthroat retail landscape. For those who missed the first part of this series, where we dissect the winning strategies of Walmart and Costco, you can catch up by reading it here.

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Overview of Hard Discount Retailers

Hard discount retailers have fundamentally disrupted the traditional retail market. By offering a limited selection of products, predominantly under private labels, mostly with a no-frills store layout, display-ready packaging, bring-your-own bags, minimizing waste, and maintaining low operational costs, these retailers pass on significant cost savings to consumers. This strategy has not only garnered a loyal customer base but also shaken up the established retail giants.

In general, The discount chains don't care about special services or fancy displays — and neither do customers it seems.

Methodology

Again, we will apply Professor Barbara Kahn 's Retail Success Matrix, the model that explores four key factors that determine retail success: Product brand, Low price, Experiential, and Frictionless. This canvas helps us discern where Lidl and Aldi excel and where they merely meet market standards.

For conducting the analysis using SWOT and other generic tools, I would recommend visiting my blog where you can find detailed information and insights using these tools.

Lidl

A. Organizational Profile

Parent: Schwarz Gruppe

Key people: Gerd Chrzanowski (CEO), Dieter Schwarz (Chairman)

Headquarters: Neckarsulm, Germany

Founded: 1932

Type of business: Privately held

Number of employees: 315,000

Number of locations: 13,000 in 30 European countries and the United States

B. Overview of Lidl's Retail Strategy

Lidl, a German international discount supermarket chain that is part of the Schwarz Group, the fifth-largest retailer in the world with sales of €153.75 billion (Statista 2021), focuses on simplicity, cost-effectiveness, and efficiency. With a no-frills store layout, it offers a limited assortment of goods, focusing primarily on grocery items, most of which are their own private labels.

C. Lidl's Strengths and Weaknesses

Lidl's primary strength lies in offering low prices due to its efficient supply chain, lean store operations, and focus on private labels. Their minimalistic in-store experience, while not as enriched as other retailers, offers customers a sense of efficiency and ease.

However, compared to some competitors, Lidl might not excel in terms of product variety and brand names due to its limited assortment and private-label focus. Moreover, although Lidl has started investing in online shopping (Launched their mobile application “Lidl Plus” in 2018) and pick-up options, their frictionless shopping experience can still be improved.

D. Outcome

According to Kahn's Retail Success Matrix, Lidl shines brightly in the low-price quadrant and offers a satisfactory in-store experience, However, there is room for growth in terms of product variety and enhancing a frictionless shopping experience.

Aldi

A. Organizational Profile

Headquarters: Essen, Germany

Founded: 1946

(Split in two parts in 1960, renamed to Aldi Nord and Aldi Süd in 1962)

Subsidiaries: Aldi Talk, Trader Joe's, ALDI Nord, ALDI NV, and More

Type of business: Privately held

Number of locations: 11,235

B. Overview of Aldi's Retail Strategy

Like Lidl, Aldi operates on a hard-discount model, with estimated sales of €121 billion(Statista 2021), offering a streamlined assortment of goods, with a heavy emphasis on their own private labels "private-label trailblazer". Aldi's focus remains on providing high-quality goods at unbeatably low prices.

C.?Aldi's Strengths and Weaknesses

Aldi's main strength is its ability to provide low prices, achieved through its strategic operations and product selection. The in-store experience is simplified, emphasizing efficiency and implementing a treasure hunt approach "Aldi Finds".

On the flip side, Aldi's product assortment, while high quality, may lack the diversity that some consumers seek. Despite the efforts towards digitalization, scan & go ...etc. The retailer is not yet fully geared towards a frictionless experience, especially regarding e-commerce and digital integration, where competitors are more advanced.

D. Outcome

As per Kahn's Retail Success Matrix, Aldi also does well in the low-price quadrant and offers a functional, if not exceptional, in-store experience. They need to invest more in enriching the product assortment (in line with keeping offering the best prices) and enhancing the frictionless aspect of shopping.

Comparing Lidl and Aldi

While Lidl and Aldi share similar strengths and weaknesses, their strategies are nuanced. Both excel in low pricing but need to work on product assortment and creating a more frictionless shopping experience. Despite these challenges, both retailers have succeeded in securing a significant customer base, demonstrating that their strategies do resonate with a sizable market segment.

Competitive Profile Matrix (CPM)*

In this CPM, Lidl scores higher in Price Competitiveness, Private Label Quality, Store Layout Simplicity, market share, and International Market Penetration. Aldi, however, excels in the Efficiency of Operations, Brand Image/Reputation, and Customer Service. This CPM reflects a neck-to-neck competition between the two retail giants.

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The Key Takeaway

From Lidl and Aldi's story, we learn that focusing on a specific market niche and serving it exceptionally well can lead to remarkable success. Again do not try to be the best at everything, Attempting to do so can be resource-intensive and ultimately lead to failure. In their case, offering low prices for high-quality goods has won over consumers who value cost-effectiveness and simplicity over vast product choices and branded goods.

The game of retail is far from over, and as we continue, remember that the masterstroke lies in selecting, understanding, and applying the effective strategies for your business.

I hope you found this insightful. These hard discounters, though distinct from their Big Box counterparts, have much to teach us about efficiency, simplicity, and delivering value to customers.

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