Every successful business starts from a plan. This plan covers how the business plans to make money, what products or services it offers, how it will identify its target audience, and the expenses incurred. This is called a business model, and it’s what will serve as the framework on which the business will operate and determine its success.
We take a nose dive into Lidl’s business model in this post, and as you read further, you’d understand why the store is so successful. You could even pick up a few tricks on how to make a winning business model for yourself.
What is the Lidl business model & competitive strategy?
Five major factors guide the Lidl business model. They include:
Lidl’s business model takes a brick-and-mortar approach, similar to Aldi, Whole Foods Market, and other stores. Though Lidl now offers home delivery services, it is primarily focused on making sales in the physical stores.
This is an excellent strategy since 96% of shoppers prefer going in-store to make purchases. The brick-and-mortar model will help build customer relationships and ultimately increase customer retention.
Lidl store branches are spread out across Europe, the United States of America, and the United Kingdom.
High-quality private brands
Fresh and quality products are what Lidl strives to deliver to customers consistently. To achieve this, the store opted for private labels. That means about 90% of the food items you see in the store are specially made for Lidl. If you were to go to another store like Walmart, you wouldn’t get the same quality.
The private brands also help Lidl cut back on expenses. For example, Lidl deals directly with product manufacturers, unlike other stores that source their products from suppliers at wholesalers at higher prices. This way, Aldi can control production and reduce unnecessary costs.
Lidl sells meat and fish, vegetables, cheeses, Special Buys, garden products, and other grocery items. The store also sells liquor, which most grocery stores struggle to offer due to strict State laws. You may think this is a lot until you take a closer look.
Lidl has a limited collection of products in high volumes. For example, you want to buy hot pepper sauce at Lidl. You get there, and you discover that the store sells only three brands of hot pepper sauce. E.g., Tabasco, Valentina, and Frank’s Red Hot. Fortunately, the store has over 100 bottles of those sauces in stock. You’d have no choice but to take your pick out of those three brands.
Meanwhile, other stores like Walmart bombard you with multiple choices, to the point that you get confused about which one to buy. This strategy is how Lidl sells out its products faster.
Have you ever noticed how Lidl has fewer employees than your regular grocery stores and supermarkets? The store doesn’t even have greeters. How this works is that Lidl hires individuals and transforms them into multitaskers. For example, a cashier at Lidl can also be a cleaner.
So if you ever plan to work there, you should expect to be performing more than one role at once. This way, the store doesn’t have to worry about sending out dozens of paychecks to people it doesn’t need.
The store also encourages self-service as customers bag their purchases themselves. That’s right. After paying for a shopping bag, you have to fill it with the items you bought yourself.
Overall, the Lidl business model emphasizes affordability. The store maintains a low profit margin so that customers can purchase goods at discount prices. This is how the store has attracted lots of customers over the years.
Challenges to the Lidl business model
One main challenge to Lidl’s business model is competition. Aldi is currently the cheapest grocery store, narrowly beating Lidl. ASDA closely follows behind. With the battle for customer retention and the struggle to maintain stability in its profit margin becoming fiercer, Lidl is sure to have a tough time staying among the top budget stores.
Another challenge to Lidl’s business model is the illusion of low quality. Low prices tend to scare customers away. This is because they feel that if it’s that cheap, then you must’ve spent next to nothing producing it. That means it is low quality and bound to deteriorate faster than expensive products. And since Lidl focuses on budget shoppers as its target market, this can affect the store’s growth. High-income earners may not see it as the ideal place to shop for quality goods.
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Irene is a Freelance content writer who helps professionals and startups build an audience with original content online. She has written over +100 articles, and is backed up by 3 years experience. She loves gaming and listening to music, while she’s not tapping furiously on her laptop.