Strategic Analysis of Lidl's Business Expansion in the Spanish Market

This report examines Lidl's strategic business expansion in Spain, detailing its market entry and growth since 1994. It explores Lidl's cost leadership strategy, competitive advantages, and investment in the Spanish market. The report analyzes the business environment using PESTLE analysis, considering political, economic, social, technological, legal, and environmental factors influencing Lidl's operations. It also applies Porter's Five Forces to assess the competitive landscape, focusing on supplier power, buyer power, and competitive rivalry within the food retail sector. The report highlights Lidl's adaptation to consumer preferences, its use of technology, and its commitment to sustainable growth. The analysis provides insights into how Lidl leverages its business model to maintain its market position and achieve expansion goals in Spain. The report concludes with an overview of the company's strategic decisions, including investment and expansion plans, and their alignment with the competitive dynamics of the Spanish retail market.

Expanding of Lidl in Spain

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Information on the selection business organisation................................................................1
Discussion on the allocated business environment................................................................3
Application of Appropriate analytical approach....................................................................5
Use and application of appropriate data and examples..........................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business expansion is a strategy in which the growth is achieved by increasing the
number of outlets in which the consumer's can buy a company's products and services. In global
context, company's main objectives is to enhance its customers across countries and its sales
revenues (Crystal, 2013). The expansion of business in regions of countries can be opportunity
for organisation to attain growth and development. Strategic decision have been made by
organisation to adopt challenges and accomplish their objective of enhancing business
operations across countries. This report covers the information about the selected business
enterprise “Lidl”, which is a German global discount supermarket chain based in Germany.
Further, discussion on business environment which is allocated to organization is also
covered along with the application of appropriate analytical approach. At last, appropriate data
and examples have been used and applied in context of organisation.
Information on the selection business organisation
Lidl has been present in Spain since 1994, as part of its international expansion, the
company has started its first store in city of Lleida. Company is positioned in the discount
supermarket segment, providing the affordable shopping services to consumers in the market.
Spain has been an attractive country which provided a potential market of around 45 million
people. In retail segment, discount was still a nascent segment with massive potential of
development within the large scale distribution sector (Clark, 2012).
Management of Lidl analysed that value preposition of their business is based upon
offering quality products at very competitive prices and it was likely to achieve success in Spain
and time has proved them correct. In Spain, presently company have 535 stores and nine
logistics platform which supplies and provide assistance to their retail network. During its
tenure of 20 years in Spain, company has made a cumulative investment of over 2.2 billion
Euros during out their 20 years in the country.
Things that differentiate Lidl from its competitors are its offers of quality products at the
best price, a combination which seems difficult in order to achieve but it is fully guaranteed by
their business model (Baker, 2012). Its Aggregated group buying strategy differentiates them
from competitors and provide them a key competitive advantage.
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In addition to this, strategic decision of company provides understanding that they are
planning to develop 40 new stores in SPAIN as a part of their record breaking investment of
around €350 million in 2018, a third higher than that of 2015. The main reason behind
construction of new stores is aimed at increasing its presence in areas under which the company
is not has its existence and also at modernising and expansion of its store holdings.
Lidl will continue its business operations in order to maintain its business strategy and
continue offering Spanish customers the cheapest prices without the making any compromise
on the quality of its products and services (Lasserre, 2017). Company also address that essential
increase in sales it has seen in recent year and also provide focus on ensuring sustainable
growth and it is planning for new logistics facilities in the future.
Apart from this, company aggregates the demand of customer for a particular product for
the overall group and buy it within the most competitive market. As the Spanish retail sector
presently offers high quality goods and services at competitive prices, presence of Spanish
products in Lidl stores is continuously increasing, not only in the company's 535 store in Spain
but also in its other 10000 stores across 26 countries. At present, more than 70% of company's
market share in Spain is made of products which are provided 500 domestic suppliers as
compared to 38% in the year 2008.
Although, company's has continuously sustained its market share and increased its sales
revenues by implementing cost leadership strategy (Alshamaila, Papagiannidis, and Li, 2013). In
Spain, retail sector is considered as highly competitive industry with various key players and
commercial stores that serves large population of around 45 million customers.
Company's business model depending upon the basic principles of discounting philosophy
which provides them essential competitive advantage and enable them to expand their business
operations in SPAIN. This strategy helps Lidl to maintain its leadership in cost without the
consumers having to sacrifice the best quality when buying their products and services. The
sustainable growth which company has achieved in previous year indicates that their model will
provide them support in business expansion and achievement of growth in market.
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Discussion on the allocated business environment
Business environment consist of all external environmental factors that affects the ways
through company functions including its employees, customers, management, supply & demand
and regulation of business. In present context, Lidl supermarket has planned to expand its
business operations in Spain. Its operations can be mainly influence by external environment of
Spain. PESTLE analysis model is used in to determine the influence of external environment
on decision of expansion of business operations. Political: This environmental factor determines the degree to which government
intervenes in the economy. Political decision and policies of different countries provide
both positive and negative influence on business expansion of company (Jones and Jones,
2013). In Spain, the minimum wage regulation will affect Lidl because if the government
have the national minimum wage rate low, then the level of employees who work will
very low. This is due to the fact that people will not work for low level of pay. Taxation
policies in Spain can also influence decision of Lidl such as if the level of income tax is
high, then the consumer will have less disposable income. Due to this, sales revenue
which is earned by company will decrease. Thus, the government has its important role
in affecting companies in retail sector. In order to expand business, Lidl needs to focus
on developing strategies through which they can cope up will challenge of political
environment in country. Economical: It consists of economic forces that affects the business activities of
company such as industrial production, agriculture, infrastructure, national incomes, per
capita income, supply of money, level of pricing, monetary and fiscal policies. In this
present, continuous economic growth of Spain has provide positive retail sector as it had
resulted in increase in disposable incomes of people (Geppert, Williams and Wortmann,
2015). Opportunities for Business expansion for Lidl has been increased as its operations
are based on the approach of providing quality products at best prices. However,
consumer spending in food retail sector increased from 2008 to 2017, mainly in the food
products and continues to increase at the rate of 5% annually. This growth of
expenditure enables Lidl to expand its business operations and maximize profitability. Social: The next factor external environment analysis involves social factors which
affects the retail industry such as demographic, life style, culture and population trends.
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With the increase in demands, preference of customers towards food retail products have
been changed with an aim to provide high competencies and factors that affects the
decision of purchase. In Spain, demand for consumption of Spanish products in market
is increased which has provided influence on decision of Lidl to provide these products
in their stores. This aids the company to attract more number of attracts more customers
and continues to expand its operations. Technological: It is regarded as the technological development which has affected and
changed the industry in different categories involving consumer, environment,
distribution, cost and logistics. In previous years, Lidl has taken advantage of internet
and offered the best online shopping experience for its customers (Tomasevic and
Spasojevic, 2018). Though this innovative feature, company provided its entire catalogue
of products to the consumers and ability to compare prices, search for product, pay and
order for their groceries. Emergence of communication channels like social media,
online portal and digital advertisement will enable the Lidl to expand its operations
through promotion of products and services. Legal: This environment factors involves influence of legal regulations on business such
as Employment laws, equality act, health and safety act and other legal regulation of
regulating business operations. In Spain, employment policies of government will also
affect the business of Lidl as they need to follow the provisions regarding payment of
salary, compensation and leaves etc. Health and safety regulation also influence the
organisation that it mus not sacrifice with the quality of products for carrying out low
cost leadership policy. This appropriate strategies enable the company to expand its
operations and achieve high growth in market.
 Environmental: Presently, various retail stores have provide major focus on producing
eco-accommodating products (Navarro Sarrión, 2016). Increasing attention to
environmental change has lead to changes in operations and company's products and
administration, in the accordance with the fact that customers are getting more influence
of ecological influence of generation. However, Lidl has ensured that it initiates various
environment friendly aspects such as the utilization of modernized ways for handling
waste disposal such as recycling.
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Application of Appropriate analytical approach
In competitive business environment, companies tends to resolve to their issues through
application of effective and reliable approaches. For expansion of business, analytical approach
is considered as utilization of analysis to break a problem down in to elements required to
resolve it. Porter's five force analysis is done identify issues that affects the operations and
decision of Lidl to expand its business operations. Bargaining power of suppliers: In this food retail sector, suppliers power is a small and
insignificant force. Most of food retail sector source their products from their
manufacurers who receive just small amount of profits (Bladowski and McCowan,
2017). Suppliers posses little control over the food retail sector as unfortunately they
are dispensable and can be swapped out. As a result, the input prices for Lidl in industry
are relatively low and will stay there until the gap between global development closes up
significantly. In this context, low suppliers power in market helps the organisation to
regulate and expand its business on its own model. It provides competencies to expand
business operations through selling of products and services at competitive low prices.
With low input price, it will be able to maximize adequate profitability after selling
products at best possible prices. Bargaining power of customers: The first important force is considered as bargaining
ability of buyers who can select to push down the prices of products, not purchase
products or switch retailers. In present case of food retail industry, buyer power in
mainly a large force for Lidl. In Spain, Food retail sector is considered as highly
competitive market because there is availability of large of retailers in market. It has
increased the ability of customers to select products before buying the products (Galán-
Ladero and Galera-Casquet, 2015). They also have many alternative stores to buy food
products and little incentive to stay with Lidl, provide them plenty of indirect bargaining
power. However, It can be said that bargaining power of customers in market is high
which influence business operation of retailer. Competitive rivalry: The food retail sector is considered as interesting one when its
comes to analysis through the intensity of competitive rivalry. In Spain, there are large
number of retailers who sell very similar products like Lidl but there is also influence of
brands which allow some companies to sell their products at competitive rates. Increase
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in number of retailer in market have also created influence on consumers to buy products
online. In addition, increase in online supermarket chain and E commerce have also
created high competition in market among retailer. However, increase in competition
tends to create influence on business expansion of Lidl and provide influence on
consumer to buy products at low cost. Moreover, strategy of Low cost leadership will
also provide support to leaders in buying products and services. Threat of new entrants: Lidl and other retailer can also address the strong intensity
threats of new market entrants. However, new entry of retail business enterprises can
easily achieved even in the presence of giants like Lidl. However, Small firms can also
enter in to markets and compete with retailer on the basis of convenience, location,
speciality and other factors. In this context, low cost of doing business also enabled the
new entrants to enter in to market and provide them competencies to capture the market
share. This situation exerts a moderate force on companies like Walmart. However, the
cost of establishing a new ventures and retail it is low. Thus, new entrants will continue
business and become potential threat for Lidl to expand its operations.
 Threat of substitutes: The threat of other substitutes has very intensity in affecting
retail industry environment. Lidl offers a wide variety of products and some important
services that have a few and no substitutes. The following external factors are most
important on Lidl, concerning threats of substitutes such as considerable existence of
substitutes, low variety of substitutes and high cost. Etc. In Spain, some substitutes of
threats for consumers in market is very low as they have low variety of products which
make it complex for consumers to move away from products which are available in
retail store like Lidl. Hence, weak intensity of substitutes in food retail sector enable the
Lidl to expand its operation in Spain by developing new stores.
Use and application of appropriate data and examples.
From the above analysis, it is clear that food retail sector in organisation has achieved
major growth and development. For expansion of business in Spain, it is essential for Lidl to
have appropriate financial performance and sales which helps them to expand business
operations (Crystal, 2013). Relevant statistics have been analysed which provide complete
understanding about firm's capabilities to enhance its operations.
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Above sales statistics of organisation provide clear analysis of increasing sales of
company in Spain (Annual sales value of Lidl Supermercados S.A. in Spain from 2014 to 2016
(in a million euros), 2017). From the 2014, the sales figures of company in retail sector have
been increased continuously. In 2016, the annual sales value of the Spanish subsidiary of
German discount supermarket chain amounted to approximately 3000 million Euros which is
around 340 million euros more than previous years.
At the beginning of 2017, yearly the financial forecast has clearly projected the more modest
economic growth rate. However, the economy is also remained highly strong and GDP growth
forecast have s also been revised up to 3.1% (Baker, 2012). These statistics reflects the growth
of economy which provide support to companies in expansion of business. Rate of growth in
GDP will keep Spain as one of the fastest expanding economies in the European Union where
the average growth of stands at approx 1.9%.
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Illustration 1: Trends of GDP growth in Europe and Spain

Growth in sales have been achieved from the recovery in consumer confidence levels, which
are following the financial crisis and despite of fluctuation considerably in 2016, it is now back
up at healthy levels. These statistics provide clear understanding that the growth of retail sales
in Spain is increased from the year 2016 by 3.6. However, retail sector saw significant upturns
in profitability. Further, forecast of 2017 suggest that retail sales growth will increase slightly
across the board to come in between the 2.0 % and 2.5%.
Moreover, these financial performance of company and growth in sales provided clear
understanding that Lidl will have opportunities to expand its operations in Spain. With low cost
leadership strategy and implementation of new technologies company will be able to achieve
growth and overall objectives.
CONCLUSION
From the above report, it is concluded that for expansion of business, it is essential for
organisation to analyse influence external environment factors on its decisions and financial
performance. Company is positioned in the discount supermarket segment, providing the
affordable shopping services to consumers in the market. Spain has been an attractive country
which provided a potential market of around 45 million people.
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Illustration 2: Growth in retail sales of Spain

REFERENCES
Books and Journals
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Management, 26(3), pp.250-275.
Baker, J., 2012. The technology–organization–environment framework. In Information systems
theory (pp. 231-245). Springer, New York, NY.
Bladowski, M. and McCowan, R.A., 2017. The Lidl international career opportunity: From
dream to nightmare in eight weeks 1. In The Dark Side (pp. 72-87). Routledge.
Clark, P., 2012. Organizations in action: Competition between contexts. Routledge.
Crystal, D., 2013. A global language. In English in the World (pp. 163-208). Routledge.
Galán-Ladero, M.M. and Galera-Casquet, C., 2015. The role of the retailers in cause-related
marketing: a reference to the Spanish case. Ekonomski vjesnik/Econviews-Review of
Contemporary Business, Entrepreneurship and Economic Issues, 28(1), pp.97-109.
Geppert, M., Williams, K. and Wortmann, M., 2015. Micro-political game playing in Lidl: A
comparison of store-level employment relations. European Journal of Industrial
Relations, 21(3), pp.241-257.
Jones, G.R. and Jones, G.R., 2013. Organizational theory, design, and change. Upper Saddle
River, NJ: Pearson.
Lasserre, P., 2017. Global strategic management. Macmillan International Higher Education.
Navarro Sarrión, D., 2016. Supermarkets in Spain: a profitability analysis.
Tomasevic, N. and Spasojevic, M., 2018. LIDL’S MODERN BUSINESS OPERATIONS IN
THE DOMESTIC AND INTERNATIONAL MARKETS. In Economic and Social
Development (Book of Proceedings), 30th International Scientific Conference on
Economic and Social (p. 346).
Online
Annual sales value of Lidl Supermercados S.A. in Spain from 2014 to 2016 (in million euros),
2017. [Online] Available through:<https://www.statista.com/statistics/748925/sales-
value-of-lidl-in-spain/>
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