Strategic Management Analysis of Lidl

Executive summary

Strategic management of the organisation is effective to conduct the external and internal business analysis as well as identify the issue for developing effective tactics to fulfil the organisational aims and objectives. The study aims to analyse the external and internal business environment of Lidl which is growing retail firm in the UK. Through the PESTEL and Porter’s five forces models, it is possible to acknowledge that there are market opportunities in the retail industry which is growing retail operations, market demand, enhancing customer’s preferences towards quality products and service and rising e-commerce and online activities. Through the Porter’s value chain model, it is easy to identify the organisational strengths and weakness. The study also provides proper recommended suggestions through which the company Lidl can mitigate the issues such as lack of market share, low customers base and lack of internationalisation strategy. The suggested options of the company will be discussed and evaluated well which are market penetrations in Asian countries, product diversification, technological advancement and promotional activities and these factors are effective of the company to fulfil the aims and mitigate the existing issues of the firm.

Introduction

Strategic management is the process of the organisations for developing effective planning, monitoring, analysis and assessing the business operational activities so that it can fulfil the organisational aims and objectives in near future (Ustundag and Cevikcan, 2017; Rothaermel, 2017). The aim of the study is to analyse the external and internal environment of the business to run their operational activities as well as the study also helps to explore new competitive strategic planning for mitigating the organisational issues so that the firm can maximise the organisational aims and objectives successfully in near future. In this study, the external and internal analysis of the business Lidl will be discussed through evaluating the PESTEL and Porter’s five forces as well as Porter’s value chain model. In addition to this, in this paper, strategic recommendations for the organisation Lidl will be suggested after analysing the available competitive strategic planning through discussing the Porter’s generic strategy.

Organisational background

Lidl is the German based global discounted super market having more than 10000 shops across the US and 28 European countries. The organisation is proficient in serving the customers with quality products through the hypermarket, super market, forecourt shops, and convenience shop. It has more than 10000 shops across the UK and US, where the customer’s retail products are delivered where the company focuses on quality products and efficient services to satisfy the international buyers. Total numbers of employees in the company was more than 315000 in the last year and it is expanding their business across the UK and US for enhancing their market share (Lidl, 2019a).

The revenue of the company in the last year was £15 million and the net income was also effective. The vision of the organisation is to be the most trusted retailer in the world, where the people love to work and shop. The company focuses on putting the customers at the heart of everything by investing on their stores, colleagues and channels to offer the best possible shopping experience. Hereby, the company aims on achieving success and future growth by enabling the anticipation and delivering the products and services required by the customers. Variety of products is available in the shops of the organisation Lidl, where the company is successful to create values for the customers. The major values on which the organisation focuses on are such as health, sustainable environment, sourcing of the resources, community development and maximising the values for the colleagues (Lidl, 2019b).

The main value of the organisation Lidl is to maximise the customer’s satisfaction by serving the customers efficiently with quality products at the best price, so that the consumers in the retail market can afford the products and make effective purchase decision. In the recent years, the company is lack behind the competition as there are other firms which are efficient and operate in the retail industry as market leader. The company Tesco is on the first largest retail chain and Asda is in the second position and Sainsbury's is the third position. Though Lidl have the strong super market chain in the UK, it fails to grab the market opportunities for which the market share of the company is less as compared to Asda, Tesco and Sainsbury’s. Lidl only has 5.9% market share in the year of 2019, which is much lesser than other competitive firms in the market (Lidl, 2019c).

As per the figure above, the company Sainsbury's is in the second positing holding 15.3% market share. As compared to Sainsbury's, Tesco is successful in grabbing 26.9% market share in the September of 2019. It indicates that, the firm Lidl is lacking behind the competition which is the major issue in the company. the another issue of the organisation is lack of market promotional activities for which it fails to retain the customers as well as attract the new audiences in the market. Lack of resourcing and promotional activities in the company are the major issues, for which the company Lidl fails to grab the market opportunities in the retail industry as well as gain high competitive advantage the market. Additionally, the company focuses on the one market which is the UK retail industry and it is another issue, for which it could not be possible for the company to expand the brand across the global retail market and ensure internationalisation of the business successfully in near future (Lidl, 2019d).

External environmental analysis for identifying opportunities and threats

PESTEL analysis

The PESTLE analysis of the organisation is effective to analyse the external business environment which in turn helps to identify the market opportunities and threats in the retail industry of the UK (Lasserre, 2017; Moatti et al., 2015). Through analysing the political, economic, social, technological, legal and environmental forces, it is possible to assess the eternal business environmental of Lidl in operating their business in the Asian markets like China and Japan.

Political:

Considering the political forces, the UK government is cooperative and there is stable condition in the country where the brand can have the opportunity to expand the business across the UK. In 2016, as UK voted to leave EU, there was instability and uncertainty in the UK market for the short time period. In this regard, the factors such as high inflation and devaluation of the Pound are alarming sign for the company to run their activities efficiently as unemployment rate is increasing and customer’s spending on the retail items is decreasing (Lasserre, 2017).

Economic:

The economic factor affects the demand, cost of the products and pricing and profitability of the firm. Though the UK economy is growing, the personal income and customer spending on the groceries are decreasing which is also not favourable for the firm to expand their business across the country. On the other hand, the demand for the food products of the customers in the Asian markets is also increasing due to moderate per capita income in the countries.

Social:

Considering the social factors, the people in the recent years prefer online shopping and in the era of ecommerce activities and digitalisation, the people aim at make effective purchase decision from the online stores. Apart from that, social development, high literacy rate, increases female workers, longevity in population influence the demand for the creative products of the companies.

Technological:

The technological factors are also playing crucial role in enhancing the organisational operational activities in the market. In the recent era of digitalisation, technological advancement is there which further influences the companies in the retail industry to perform better and enhance innovation and creativity for ensuring service excellence. In this regard, it has been evident that, in 2009, Lidl expands their service through online shopping and there was 20% increase in the sales volume due to efficient service through online activities of the firm (Ustundag and Cevikcan, 2017).

Environmental:

The strict environmental rules and legislation and rising concern among the people about saving the sustainable environment further give great pressure to the firms to make the business sustainable and provide green environmental footprint to sustain in the business (David, F.R. and David, F.R., 2019). Hereby, it is necessary for all the retailers to take care of the environmental sustainability and develop effective strategic planning for the benefits of the society.

Legal:

Government legislations and policies have direct impacts on the organisational operations and in this regard the tax system, copyright and intellectual property rights as well as employee protection legislative structure are effective where the organisations have the opportunity to run their operations ethically.

Porter’s five forces analysis

Porter’s five forces analysis is effective to understand the market and internal forces of the organisation which in turn provides a scope to acknowledge the market opportunities and threats. The five forces in the context of the organisation Lidl will be discussed further,

Competitive rivalry:

There is high competitive rivalry among the retail firms where the presence of the huge numbers of competitors and efficiently of the competitive companies further increases the competition in the market. The competitive companies in the retail market are such as Morison, Tesco, Asda, and Sainsbury’s, Aldi and Walmart who are also playing efficiently to grab the market opportunities and strengthen their customer’s base for near future. It becomes difficult for the organisation Lidl to gain high competitive advantage due to such intense competition in the global retail market (Moatti et al., 2015).

Threats of substitute products:

The threat of substitute products is high, due to availability of the subtitle products in the retail industry in the UK and also across the globe. The other competitive brands are also efficient to have product diversification strategy and present huge variety of products and services in the market (Moatti et al., 2015). This further raises the threats of the substitute products in the market for the company Lidl.

Threats of new entrants:

The threat of new entrants is moderate, as the company Lidl has already established their brand in the retail market and it is one of the old brands operating in the country and serving the customers efficiently. Hereby, it is difficult for the new entrant to establish their company in the market and grab the market share. High investment required for the new entrant as well as they need to have strong customer base for getting market share, which is difficult for the new entrants. Hereby, there is moderate threat of new entrants for the company Lidl.

Bargaining power of the customers:

The bargaining power of the customers is high, as there are other competitive firms who are operating efficiently and the customers may switch their brand preference for better products and services at lower price (David, F.R. and David, F.R., 2019). The factors such as low switching cost of the customers as well as availability of the variety of products in the market make the customers effective to bargain for the organisational products and services in Lidl.

bargaining power of the suppliers:

The bargaining power of the suppliers is moderate, as there is strong supply chain of the organisation Lidl as well as the company tries to maximise the values for the suppliers by providing them proper performance incentives and return on investment. However, the factors such as low switching cost and other opportunities for getting better placement make the bargaining power of the suppliers moderate.

Identified opportunities and threats

From the above analysis, it can be stated that, the political stability and economic growth in the country are the market opportunities where the company can grab the market demand and strengthen their customer’s base (David, F.R. and David, F.R., 2019). Social development and technological advancement are other factors that also influence the firm’s activities through online and offline mode of business, where the online market growth and e-commerce activities are the opportunities for Lidl to expand their services and ensure service excellence in the market. Hereby, identified market opportunities and threats are such as,

Internal environmental analysis for identifying strengths and weaknesses

Porter’s value chain analysis

Through the Porter’s value chain analysis, it is possible for the organisations to assess the internal evaluation where the firms try to enhance their performance by strengthen their operational activities (David, F.R. and David, F.R., 2019). As per the theory of porter’s value chain model, there are support activities and the primary activities which are discussed further.

Primary activities:

The primary activities of the companies include inbound logistics, outbound logistics, operations, marketing and sales and services. The company Lidl focuses on managing the operational activities through inbound and outbound logistics to handle the products and services as well as serve the customers in a better way. Continuous monitoring process, implementation of the ERP system and GPS tracker, the company aims to manage the warehouse and handle the availability of the products at the company physical stores. Apart from that, for managing the services, the company provide proper protection to the customers and after sales services further create values for the customers in near future. Considering the marketing and sale, the company promotes the company’s products through word of mouth and developing company website, but it is not efficient to grab the recent market opportunities. In the recent era of globalisation and digitalisation, the organisations in the retail industry mainly focus on the promotional activities to enhance the sales volume, where the organisation Lidl lacks to enhance their mart communication in the retail market across the UK (Lidl, 2019e).

Support activities:

As per the secondary activities, there are efficient factors which are technological development, firm’s infrastructure, human resource management and procurement. In this regard, the company Lidl focuses on managing people in the organisation and fulfil the requirements of all the stakeholders by providing high return on investment. This organisational practice further helps the organisational leader to maximise employee’s values at the workplace ad lead them toward achieving future success. Apart from that, harmony and freedom to work in the workplace, performance related pay and restructure salary of the employees are effective strategic planning to manage the human resource, where the employees are the major stakeholders to improve brand value by serving the customers in a better and unique way (Ansoff et al., 2018). Apart from that, firm’s infrastructure is suitable where the employees can utilise the organisational resources to enhance their capabilities to produce the quality products and deliver excellent service which would be effective in maximising the satisfaction level of the customers. In addition to this, as per the technological development, the company implements ERP and GPS system for monitoring and transitions of the products and checking availability of the products, apart from that the good packaging system through machinery and the production system are also effective for the company to gain customer’s trust and loyalty in the retail industry in the UK (Lidl, 2019f).

Identified strengths and weakness

As per the above analysis, the identified strengths and weaknesses of the company Lidl are such as,

Identification of Competitive Strategies

Porter’s Generic Strategies

Through the Porter’s generic strategy, it is possible or the retail firms to identify the strategic planning which is suitable for the companies to mitigate the existing issues and enhance the brand performance in near future (Rothaermel, 2017). As per the model of Porter’s Generic Strategies, there are different strategic planning such as low cost, cost leadership strategy, differentiation and market penetration through which the retail firms can enhance their market share and maximise the organisational aims and objectives in near future (Ansoff et al., 2018).

In this context, the company Lidl has the opportunity to restructure the strategic planning and develop effective tactics to perform better in the Asian market, in this regard, there are strategic options of increasing product diversification to handle a good product line in the company and grab the opportunity to retain the trustworthy and loyal long term customers efficiently (Rothaermel, 2017). In addition to this, the company also has the capability to invest more on the products variability and handle the operations strategically. In this regard, market penetration is another option where the company can expand the brand in the Asian markets likes China and Japan and through this strategic option, Lidl can mitigate the issue of emphasising on one market UK. Through this strategic option, the company can expand other business across the international countries and diversify the risk in near future for grabbing the market share in the international retail market (Hill, 2017). On the other hand, the company have the strategic option of enhancing the promotional activities in the market through improving digitalisation of the business as well as focusing on the e-commerce platform for grabbing the opportunity of growing the online customers demand. This is another strategic option, through which Lidl can handle the issue and enhance the sales volume and profitability to grab the market opportunities and gain high competitive advantage over other competitive brands in the market (Ustundag and Cevikcan, 2017).

Strategic directions and methods of expansion

market penetration:

Market penetration is one of the effective strategic options for the organisation Lidl where the company has the opportunity to expand the brands in the Asian markets, China and Japan and mitigate the issue of focusing on only one retail industry of the UK. Through expanding the retail chain and enhancing the online activities and e-commerce services, the company can expand their business and target a Chinese and Japanese retail market, where it can retain the customers. It would be beneficial for the company to target the emerging economies like China and Japan, where high population growth and strong customer base are the major opportunities to establish the brand in the international market and enhance the profitability and sales growth. The company also has the opportunity to have merger and acquisition for partnership business in the new international market to establish the brand and ensure positive branding in the retail market.

Enhancing market communication through promotional activities:

Market communication is necessary for strengthening the customer base in the retail industry and for this, the company needs to invest on promotional activities. The company needs to focus on social media platform for promoting and launching the products and services of the organisation, so that it can attract the audiences and retain the long term buyers in the Asian markets, China and Japan. Through increasing social media communication as well as interaction with the customer through customer portals and company own website, it is possible for the organisation to attract the audiences and enhance trust and loyalty in the market. Posting good content about the products and pricing in social media such as FaceBook and Twitter as well as uploading videos in YouTube would be beneficial for Lidl to promote the organisational products and improve market communication.

Technological advancement:

Technological advancement is necessary, where the company Lidl needs to enhance the online activities and ecommerce system so that the customers can check the availability of the products online and make effective purchase according to their needs and preferences. In this regard, Lidl must develop the company website with simple content and variety of pictures to show the availability of the products. Apart from that, launching new mobile application would be the best option for the company where the customers can manage their account through the Smartphone and make their purchase and payments easily through the secured mobile application.

Product diversification:

Product diversification is necessary for the company though it has quality product and services to serve the customers. Lidl needs to introduce more new products as there is high demand for innovative and latest product and through this strategy of product diversification, the company can target different customers with diversified needs and preferences. Apart from the food products, the company needs to focus on daily necessary products and personal used products for targeting the customers and ensure successful consumer retention.

Environmental sustainability:

For environmental sustainability, the company needs to manage paper packaging for safe packaging system as well as invest on society for social wellbeing so that it can provide green environmental footprint in the Asian markets, China and Japan. Through providing free foods to the needy people for reducing food wastage as well as implementing electric cars to reduce the carbon emission would be effective for the business to become sustainable and gain high competitive advantage in the Asian countries.

Conclusion

It can be concluded that, the organisation Lidl have the strengths of finance and management team who can lead the organisation towards achieving future success. The major issues of the company are such as emphasising on one retail industry UK, low market penetration and product diversification, lack of profitability and low market share. The company Lidl needs to grab the market opportunities through identifying the strategic competitive tactics so that it can gain high market share and resolve the existing issues. Through the Porter’s value chain analysis, it is possible to identify the strengths of the firm Lidl which have strong employee base, good place to work, profitability and financial enhancement of the company and good quality products which are contributing factors in the organisation to expand the business across the Asian countries, China and Japan by mitigating the existing issues. As per the strategic recommendations, the company Lidl needs to focus on market penetration, enhancing market communication through promotional activities, technological advancement and product diversification strategy which would be beneficial for the brand in near future to grab the market opportunities in the Asian countries and gain high competitive advantage in such an intense competitive global retail industry.

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Reference List

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