With customers often looking forward to cutting their bills and spending less on essential items, Lidl has been a go-to store for cost-conscious customers.
But, have you ever wondered why Lidl’s products are so affordable? Put another way, you may be asking, what’s Lidl’s business model? Well, I’ve looked into it and here’s what I found out!
What Is The Lidl Business Model In 2023?
Lidl’s business model is based on selling fresh foods and products for discounted prices and the company relies heavily on brick-and-mortar operations. Also, Lidl has introduced Home Delivery programs in 80 stores spread across America’s East Coast. Additionally, Lidl competes in the market by providing 90% private label products.
If you want to find more information on how Lidl’s business model works, its strategies of success, and much more, keep reading!
How Does Lidl’s Business Model Work?
Lidl’s business model is based on a chain of retail stores across Europe, the UK, and the US.
Further, the company operates as a discount store with more than 10,000 locations and is a close competitor to the Aldi grocery store.
Currently, the company has spread its stores in 28 countries with over 300,000 employees from across the world.
Also, the company promises consumers fresh, healthy, and value-added products at discounted prices.
With Lidl in the grocery store industry, customers can get vegetables, meat, wines, special buys, groceries, garden products, and everyday collections at affordable prices.
Additionally, Lidl’s business model has managed to maintain the company in the industry due to the low prices of items offered by the stores.
Therefore, competitive prices attract more customers in new markets and promote customer retention in existing markets.
What Makes Lidl’s Business Model Unique?
Lidl’s business model is unique due to its dependence on the cost leadership strategy that guarantees customers high-quality products at relatively low prices.
Further, Lidl has implemented the following unique cost-cutting strategies that help the company maintain low costs:
Stocking Of Private Brands
About 90% of the products sold by Lidl are private-label brands that are manufactured specifically for Lidl.
That said, each item has to pass through a different testing regimen for quality control and elimination of unwanted expenses.
Ideally, stocking of private label brands helps Lidl cut out intermediaries, which ultimately reduces any additional costs by the supplier.
In addition, getting private label brands directly from the manufacturer gives Lidl greater control over the manufacturing cost and, therefore, sets low prices for the consumers.
Consequently, Lidl can sell products at higher margins than other national brands.
Lidl Provides A Limited Selection Of Products
Lidl provides customers with a limited selection of products to promote items under its private label.
However, Lidl makes up for the limited variety of products by ordering large quantities, increasing its suppliers’ buying power.
Moreover, the company offers about 2,000 products in its store, which is lower than the usual 20,000 at grocery stores or the 60,000 items available at supercenters.
Lidl Stocks Fast-Moving Items
Lidl strategizes on stocking everyday items that move faster. As such, the assortment available at Lidl is limited to high-velocity things that drive gross profit for the company.
Lidl Maintains Low Labor Costs
Lidl stores have a limited number of employees to lower the labor cost, which translates to lower prices of items.
That said, to achieve smooth business operations with a limited number of employees, Lidl utilizes efficient technology and automation in the back room.
Also, customers are required to weigh purchase products on their own and bag their groceries.
Furthermore, the employees available are cross-trained to work in any section, thereby reducing labor costs.
Display Of Products In Shipping Boxes
Lidl displays items in its stores using the packaging boxes they were shipped in.
With that, this strategy helps the company reduce reliance on human resources and speed up the restocking process.
Therefore, Lidl spends less money on in-store merchandising due to the reduced stocking processes.
So, instead of traditional cardboard cutouts or stacked pyramids, the store sticks to simple designs and uses baskets and dump bins to present available products.
Lidl Cuts Its Lighting Costs
Lidl further reduces costs by spending less on lighting and other bells and whistles in the store.
That said, the store ensures to limit any cost that would cost the customer regarding the purchasing price of items.
For instance, the store makes use of natural lighting whenever possible.
Reduced Costs On Ads
Lidl strategizes on local and small-scale marketing. For example, the company uses local social media and radio advertisements to reduce the costs incurred in advertising its products.
Does Lidl Make Profit?
Yes, Lidl makes profits both in the US and UK markets. For instance, the company generated approximately .9 billion in the US during the last fiscal year.
In the UK market, Lidl Great Britain Limited made approximately 6,885 million British pounds.
What Threats Does Lidl’s Business Model Face?
Lidl’s business model faces threats such as aggressive competition, the assumption of low quality, and the increased focus on low-income groups.
Even with the strong market presence in the retailing industry, Lidl faces the following threats:
Lidl is currently facing aggressive competition from other grocery retailers within the industry. For example, Lidl’s main competitors include Aldi, Tesco, Sainsbury’s, Asda, and Morrisons.
Further, these retailers have devised almost similar strategies to Aldi, creating a rift in consumer retention.
On top of that, Lidl faces competition from giant online retailers such as Amazon.
Assumptions Of Low Quality
Due to Lidl’s discounted prices, most potential customers mistake the pricing to reflect on the low quality of items.
Increased Focus On Low-Income Groups
With Lidl’s increased focus on an economic segment, the image of low quality may impact the company’s growth in the following years.
Therefore, Lidl would need to strategize on the long-term effects of its focus on low-income groups.
If you want to know more, you can also read our posts on what is Lidl, Aldi vs. Lidl, and the Lidl stock.
In conclusion, Lidl’s business model is based on discount retailing of groceries and fresh produce.
Further, the company heavily relies on a cost leadership strategy to maintain lower prices of products.
However, some aspects that threatened Lidl include fierce competition from Aldi and Amazon, people incorrectly assuming products are of low quality, and its reliance on lower-income consumers.