Mark 2312 / International Marketing
International Market Assessment for Lidl
Andrew Hill – P17056400
Tutor: Simon Heaton
Executive Summary
The BRICS economies have reasons for and against Lidl opening new stores there and this report discovers the reasons why Brazil is the most suitable candidate out of the BRICS economies encouraging foreign investment/tax incentives to companies focussing on innovation.
Contents
Executive Summary 1
Contents 1
Introduction 2
Company Background 3
Country Analysis 3
PEST Analysis 3
Political 3
Economical 4
Social 4
Technological 4
SWOT Analysis 4
Strengths 5
Weaknesses 5
Opportunities 5
Threats 5
Recommendations 5
Conclusion 6
References 6
Bibliography 9
Appendix 13
1.0 Key Information from Lidl 13
1.1 Lidl Websites/Pages of Interest 13
1.2 Lidl: Big on Quality, Lidl on Price Promise 14
1.3 Lidl UK Masthead 14
1.4 Quick Analysis of German Discount Retailers and Supermarkets 14
1.5 Lidl in Germany 15
2.0 Comparing Brazil vs China 16
2.1 Comparing the cost of living: 17
3.0 Pestle Analysis 18
3.1 Political: 18
3.2 Economical: 18
3.3 Social: 18
3.4 Technological: 18
3.5 Legal: 19
3.6 Environmental: 19
3.7 Legal: 19
4.0 SWOT Analysis 20
4.1 China VS Brazil 20
4.2 South Africa 21
4.3 Russia 22
4.4 India 22
5.0 What Country from the BRICS economies is most suitable? 24
5.1 Issues with Breaking into New Markets 25
5.2 Russia 25
5.3 Brazil 25
5.4 India 26
5.5 China 26
5.6 South Africa 27
6.0 Travelling from Texas, USA to Sao Paulo, Brazil 27
7.0 Brazil Economy 29
7.1 Trade Balance 30
Introduction
This report identifies the most attractive emerging economy for Lidl. The report focusses on Lidl’s entry into Brazil as the most attractive emerging economy by exploring its suitability to Brazilian markets using PEST analysis to evaluate how attractive Brazil is is and SWOT analysis to demonstrate how Lidl matches the opportunities in the identified international market with comparisons to China and other BRICS countries with recommendations based on the analyses (refer to appendix).
Company Background
Lidl is a discount retailer operating in 30 countries across Europe, Asia and America with more than 10’000 stores (Info.lidl, n.d.) that brand themselves as a low-value, high-quality retailer (Appendix 1.2) and committed to sustainability to the extent they have a page dedicated to it, advertised in the masthead (Appendix 1.3) of their websites.
Lidl was founded in Germany in 1973 and is no stranger to overseas expansion, expanding into France after opening 300 stores in Germany; entering UK in 1994 (Lidl UK, 2017), later opening in Asia and USA.
Unfortunately, expanding into America wasn’t as smooth as expanding to other countries , it was identified customers acquired from established retailers return to normal shopping habits within months when grocery retailers offered larger discounts to win back customers (Maldonado, 2018), eliminating the cost-savings USP that discount retailers offered impacting their ability to compete (Catalina, 2018), Strategic Entry Deterrence strategies meant Lidl’s own-brand products were no longer the cheaper option compared to named-brands US consumers are used to whose prices had been discounted by other retailers; brand preference took priority over value preference – consumers will pay more for brands they are loyal to/trust than the same product of an unknown brand (Power, 2018. Global Banking & Finance Review, 2017). But, by bulk purchasing, stockpiling and high-volume sales strategies, Lidl have started making headway in US markets (Wells, 2018), this could be replicable in emerging markets especially in Brazil where distribution won’t be overstretched due to their proximity to America, but Lidl may have to use airfreight (see appendix 6.0) which will have negative impacts on costs, further exacerbated due to high import tariffs.
Country Analysis
This section contains a PEST and SWOT analysis of Brazil and Lidl to demonstrate the suitability of Brazil.
PEST Analysis
Using a PESTLE analysis, we can analyse the macro-environmental factors countries present, becoming important considerations for Lidl choosing which country to enter (see Appendix 3.0 for thorough PESTLE analysis). Brazil’s been identified as an appropriate economy for Lidl (see Appendix 5.0 for country comparison) because of reception of foreign investment, a growing population and high unemployment which Lidl can take advantage of by recruiting loyal workers and avoiding high employee turnovers due to a lack of supply of jobs in the employee marketplace.
Political
Far-right political parties campaign to cut overseas investment favouring protectionist policies (Petkova, 2017) impacting Lidl if they opt to wait until the next political-term before moving into the market; Brazilian government managed to curb political unrest and protectionist policies have relaxed recently (Nunes and Melo, 2017), especially since the Brazilian recession started in 2011 (Braga, 2018) benefiting Lidl because grocers were largely unaffected (Ray, 2017); those companies which did succumb to the recession will present gaps in the market for Lidl to fill; Lidl uses the ‘Middle of Lidl’ (Appendix 1.1 and 4.1.2) to take advantage of consumer demands on a social/seasonal basis (Spary, 2014).
Economical
America is the closest country where Lidl are already operating (Lidl.com, n.d.) which theoretically means Lidl in Brazil can share a supply chain to the USA where products are transported by road or rail as opposed to air (expensive) or sea (slow) but realistically, due to high import tariffs and Brazil being excluded from the North American Free Trade Agreement (NAFTA), it’s unlikely there will be any cost incentives in doing this over a long-term period, especially as the USA begins withdrawal from the agreement (Thrush, 2018) initiating protectionist policies (Frankel, 2018) meaning there’ll be tariffs as products travel into and out of Mexico from USA and tariffs as they enter Brazil.
Social
An impact on organisations looking to operate in Brazil is the lack of fiscal stability (Pereira Da Silva, Sales and Gaglianone, 2012. Brazil: Financial Stability Assessment, 2018) causing visible poverty as the rich (where Brazil’s richest 10% have access to more than 40% of the country’s wealth) and poor (where the 10% of the poorest Brazilians have access to just 1% of the country’s wealth) live side-by-side (Meyer, 2010). However, wealth inequality isn’t a negative factor in itself considering Adam Smith’s “invisible hand of the market” which tells us provided the “labouring poor” of the nation can fulfil basic needs they won’t be victims of poverty (Smith, 2007) and wealth increases as part of an economic feedback loop through the creation of jobs from which business-owners profit (Todd, 2013) meaning, whilst income inequality may push Lidl’s prices to be unaffordable for Brazil’s poor; creating jobs may elevate their level of wealth, alleviating the poverty crisis facing Brazil (Phillips, 2017); Adam Smith wrote in ‘A Wealth of Nations’ (1776), the wealth of the few benefits the many, therefore, wealth inequality is good and required of economically successful nations.
Technological
Brazil’s innovation laws (decree no. 9283/2018) allows companies to deduct up to 80% of research and development expenses from any tax due from company profits and 50% from excise tax on purchasing equipment from overseas for innovation research (Lexology, 2018. The Worldfolio, 2012), meaning Lidl will be able to make large cost-savings on research and development (R&D) which could be used in worldwide operations; supply chain logistics won’t differ much from country to country, for example.
SWOT Analysis
Using a SWOT analysis (appendix 4.0 for full SWOT analysis), we can compare the strengths and weaknesses Brazil has and what opportunities and threats presented to Lidl.
Strengths
Lidl own their supply chains (Zachary, 2015) meaning they have control and ownership over technology used throughout their supply chains (FutureLearn, n.d.), including the on-board computers (Apostolos, 2017) in the cab of the trucks used for distribution; providing information to the driver and store staff knowing which pallets need unloading, this’ll be dictated based on stock after synchronisation with Point-of-Sale technology sending order requests based on a Just in Time (JIT) model whereas less-developed organisations rely on Just in Case (JIC) models giving Lidl an advantage; there are financial incentives for JIT meaning Lidl won’t have to fully stock storerooms therefore decreasing the size of the stock rooms favouring increased number of aisles and number of saleable items.
Weaknesses
The poorest 10% of Brazil have access to 1% of the nation’s wealth pushing Lidl’s prices to an unaffordable level when foreign exchange is considered; poorer consumers will spend larger proportions of household budgets on necessities (Tinson et al., 2014) and even with Lidl being a discount retailer, it’s likely luxury goods will be unaffordable for the budgets of those in the poorest 10% (Arvis, 2013).
Opportunities
Because of decree no. 9283/2018 in Brazil, Lidl will be able to do a lot of R&D which will benefit their worldwide operations because Brazil will charge significantly lower import duties on goods used for innovation (Lexology, 2018); Lidl can use Brazil as an R&D powerhouse giving Lidl opportunities to become market leaders in the worldwide retail markets, especially in less developed countries that they’re already operating in, including Croatia which are the 7th most developed emerging economy (The Inclusive Development Index 2018, 2018).
Threats
A threat could be what state Lidl open in; Distrito Federal is richest state in Brazil (R$64’653 GDP per capita) whilst Piaui is the poorest (R$8’137 GDP per capita) state (Chepkemoi, 2017). If Lidl chooses to open in a richer state, they’ll expect to pay higher salaries benefiting from higher revenues as customers will be willing to spend more on everyday items whilst opening in cheaper states will lead to lower salary costs but poorer customers will be willing to spend less which might not be an issue for a discount grocery retailer (Khan Academy, n.d.); the question is, how deep can their discounts go?
Recommendations
Brazil’s a strong economy for Lidl, from their encouragement of foreign investment (Nordea, 2019. Santander Trade, 2019) to their strong recovery from the recent recession which largely unaffected the grocery market (Amadeo, 2018. Sharma, 2015) and the increasing levels of GDP in the country (Trading Economics, 2019).
It is most worthwhile for Lidl to choose a state like District Federal or Sao Paulo (the second richest state in Brazil) to base their initial Brazilian operations; the microeconomies within these states are very strong compared to areas of lower GDP (Britto, 2016), this will promote increased revenue whilst their Brazilian employees will benefit from better working conditions and increased wages (Loveland, 2018) than they would in the poorer states of Brazil.
The political factors of the PEST analysis and the threats of protectionism that have hindered Brazil’s development in the past (Mata and Love, 2008) and the reversal of these policies (Gallas, 2018) and the increased productivity the country has seen as a result (Maia and Menezes, 2014) makes Brazil the most attractive of all BRICS economies (see appendix 5.0).
Conclusion
This report has explored opportunities, threats, strengths and weaknesses of Brazil, taking into consideration political, economic, technological and social factors to make recommendations based on whether Brazil is suitable for a discount retailer like Lidl to expand into. It is found that Brazil is one of the strongest economies within the BRICS economies and formed the subject matter of this report. Whilst Brazil has a long way to go as a developing economy it will likely be a leading figure of the globalised economy.
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Lidl UK. (n.d.). Customer Orientated Expansion | Property. [online] Available at: https://www.lidl.co.uk/en/Customer-Orientated-Expansion-3402.htm [Accessed 29 Jan. 2019].
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Numbeo. (2019). Cost Of Living Comparison Between Brazil And United Kingdom. [online] Available at: https://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=Brazil&country2=United+Kingdom [Accessed 29 Jan. 2019].
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PBS NewsHour. (2012). Why China’s Youth Find Western Culture Attractive. [online] Available at: https://www.pbs.org/newshour/show/why-china-s-youth-find-western-culture-attractive [Accessed 29 Jan. 2019].
Rachid, B. (n.d.). Information about BRICS. [online] Brics.itamaraty.gov.br. Available at: http://brics.itamaraty.gov.br/about-brics/information-about-brics [Accessed 29 Jan. 2019].
Rangel, G. (2018). Brazil: Low inflation and a longer easing cycle. [online] ING Think. Available at: https://think.ing.com/articles/brazil-low-inflation-and-a-longer-easing-cycle/ [Accessed 29 Jan. 2019].
Rapoza, K. (2017). Brazil’s Unemployment Crisis Is The Worst In 20 Years. [online] Forbes.com. Available at: https://www.forbes.com/sites/kenrapoza/2017/05/01/brazil-economy-struggles-with-unemployment-reforms/ [Accessed 29 Jan. 2019].
Redman, R. (2018). Study: Lidl store openings bite into competitors’ sales. [online] Supermarket News. Available at: https://www.supermarketnews.com/retail-financial/study-lidl-store-openings-bite-competitors-sales [Accessed 29 Jan. 2019].
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Appendix
1.0 Key Information from Lidl
1.1 Lidl Websites/Pages of Interest
What Lidl want from a new site https://www.lidl.co.uk/en/Site-Requirements-5377.htm
LIDL FAQ https://www.lidl.co.uk/en/FAQs-10368.htm
QA measures: https://www.lidl.co.uk/en/Non-food-3971.htm
Lidl Sustainability: https://www.lidl.co.uk/en/sustainability.htm
Lidl About: https://www.lidl.co.uk/en/About-Us.htm
Lidl Germany: https://www.lidl.de/
Lidl US: https://www.lidl.com/
Customer Oriented Expansion: https://www.lidl.co.uk/en/Customer-Orientated-Expansion-3402.htm
1.2 Lidl: Big on Quality, Lidl on Price Promise
(source: Lidl – About Us, accessed 14th January 2019: https://www.lidl.co.uk/en/Big-on-Quality-Lidl-on-Price-1591.htm)
1.3 Lidl UK Masthead
Source: Screenshot of Lidl UK website: www.lidl.co.uk
1.4 Quick Analysis of German Discount Retailers and Supermarkets
Aldi are close competitors of Lidl and share many similarities and differences, as a result, by considering Aldi as a similar company as Lidl, we can make several assumptions based on Aldi’s activities in the marketplace.
Aldi keeps costs low by working with high volumes of distribution. The bulk purchasing of supplies results in cost-savings for Aldi (Lidl uses a similar technique). The bulk purchase and storage in warehouses allow for centralised distribution meaning reliance on third-party suppliers isn’t critical provided stockpiles are maintained; as suppliers run out of stock, Aldi can fall back on their stockpiles until the supplier restocks – meaning Aldi can supply stores on a Just in Time (JIT) basis even if the supplier has run out of stock.
Supermarkets by nature have higher safety and hygiene standards than corner shops or small retailers, for example. A lot of food is produced in store in their bakery section and whilst Aldi don’t make any products in store, Lidl do. Food labelling standards aren’t as strict for goods produced and sold on the same day in store, however more retailers are moving towards labelling in-store produce resulting in the allergen scandals that have affected larger supermarkets in the UK.
Supermarkets like Aldi and Lidl have their own supply chains which produce their own-label products which are arguably the same as common, more expensive brands households are used to, this brings down costs as they don’t relying on third-party manufacturers/producers; Tesco and Ginster’s rely heavily on Samworth Brothers’ factories for the production and distribution of their Sandwiches and other ready-to-eat foods which gives them limited control over hygiene and production, and more importantly, costs whilst Lidl and Aldi both have their own complete supply chains which include logistics.
Because of the control they have over their own supply chains, meaning they have control over the technology used throughout the supply chain, including the on-board computers in the driver’s cab of the lorries used to distribute products – these computers can provide information on which pallets are to be delivered to the individual supermarkets based on stock levels of the store (the computer would be synchronised with POS technology which will monitor stock levels and automatically reorder supplies as they run low).
Most supermarkets typically have a high employee turnover resulting in the low wages, but Lidl and Aldi, due to their volume sales and control over costs which leads to increased profit, are able to pay their staff more.
Aldi and Lidl’s success are largely attributed to low marketing costs and the supply of mostly non-perishable items which enables them to stockpile goods for long periods of time.
1.5 Lidl in Germany
Lidl in Germany offers online shopping: https://www.lidl.de/
My Lidl World childrens’(?) mobile game which is very similar to Shopping Center Tycoon (PC game): https://www.youtube.com/watch?v=umT9vYs887E (it’s very interesting)
Lidl in Germany have a different slogan: https://www.lidl.de
2.0 Comparing Brazil vs China
|
China |
Brazil |
|
Population: 1.39 billion (6.6x larger than Brazil) |
Population: 209.3 million (15.1% of China’s population) |
|
Chinese economy seems to be largely unaffected by the 2008 financial crises and other economic downturns over the long-term that have impacted the west.
China economic troubles include:2017 Chinese debt explosion & June 2015 Stock market bubble burst. |
Coming out of recession (recession announced two years ago) but strong growth in grocery markets. |
|
China has an increased deficit but most of their deficit is caused by borrowing to invest in economic growth (which translates into investment into private companies). |
Lower deficit than China in monetary terms due to much smaller economy but deficit is higher relative to China when this is taken into consideration. |
|
Shows more restraint in consumer spending and spend less per capita than Brazil, even when taking into consideration the size and apparent health of the economy. |
Retail spending per person is higher than Chinese people and appear more susceptible to consumerism. |
|
China deemed less innovative, counterfeit culture China has been associated with throughout the early 2000’s at least. ‘Chinese knockoffs’ is a term often used to describe low quality or counterfeit goods. |
Brazil rank higher than China in the Global Innovation Index. |
|
Chinese Government are working towards a policy named ‘Made in China’ which aims to expand the amount they export into foreign nations. |
Brazil have a very protectionist, right-wing leader who is trying to limit foreign investment and foreign trade in favour of Brazillian manufacturing and production. |
|
Credit Rating: Aa3 Downgraded by Moodys in 2017 from A1 |
Credit Rating: Ba2 (Stable) according to Moodys
|
Sources:
China population:
http://www.worldometers.info/world-population/china-population/
Brazil population:
http://www.worldometers.info/world-population/brazil-population/
Comparison of Brazil and China economy: https://countryeconomy.com/countries/compare/brazil/china?sc=XE88
IMF: Credit Booms – Is China Different? (2018): https://www.imf.org/~/media/Files/Publications/WP/2018/wp1802.ashx
IMF: Global Financial Stability Report (2018): https://www.imf.org/~/media/Files/Publications/GFSR/2018/Oct/CH1/doc/text.ashx?la=en
Moodys downgrades China’s credit rating:
https://www.moodys.com/research/Moodys-downgrades-Chinas-rating-to-A1-from-Aa3-and-changes–PR_366139
Brazil credit rating:
https://tradingeconomics.com/brazil/rating
2.1 Comparing the cost of living:
3.0 Pestle Analysis
3.1 Political:
3.2 Economical:
3.3 Social:
3.4 Technological:
3.5 Legal:
Restrictions in China for foreign businesses and what areas they can operate in: https://www.gov.uk/government/publications/overseas-business-risk-china/overseas-business-risk-china http://www.cbbc.org/
3.6 Environmental:
3.7 Legal:
4.0 SWOT Analysis
4.1 China VS Brazil
|
China |
Brazil |
4.1.1 Strengths
|
Strengths: Strong economy Grocery shopping prices competitive with Lidl Largest economy in the world in terms of purchasing power Strong utilisation of contactless tech and adoption block chain technology(?)
|
Strengths: Competition thinned out due to recent recession causing many businesses to cease trading Registering new business in Brazil is much easier with a similar registration process as Companies House in the UK Low inflation |
4.1.2 Weaknesses
|
Weaknesses: Registering new business in China is difficult. Lidl might not be able to use cheap but good quality as USP due to competitive pricing Restrictions on areas foreign companies can operate in Chinese ‘chop’ system (companies require rubber stamps which can be lost, stolen or transferred) could result in unknown/unauthorised takeover of foreign companies if regular checks aren’t carried out Lidl’s branding USP, ‘Middle of Lidl’, would be ineffective in China unless they produced products directly in China. After importing, prices will be less competitive. |
Weaknesses: Recent recession means lending is likely to be tight, but interest rates are likely to be low
|
4.1.3 Opportunities
|
Opportunities: Less competition from UK / European competition due to barriers to entry. Westernisation of China and Asian markets Large population may translate into larger numbers of customers / increased revenue. Cheap labour More productive economy China wants to move toward consumption led growth rather than investment led |
Opportunities: Easy entry for new business Receptive of foreign direct investment Grocery shopping largely unaffected by the recession High unemployment resulting from recession is likely to allow companies like Lidl to develop a strong workforce quickly Cheap labour
|
4.1.4 Threats
|
Threats: Entry to the country might be difficult China are more restrained in terms of luxury purchases and in terms of retail spending overall. China grocery prices are very competitive with European groceries Companies which aren’t familiar with Chinese business law could find themselves being taken over without authorisation, likely through criminal means which should be reversible but can be damaging to brands if regular checks aren’t carried out to ensure chops awarded by Chinese government aren’t stolen or misappropriated China has a high corruption ranking but suffers from less corruption than Brazil and India but more than South Africa |
Threats: Protectionist government might be unwelcoming of European retail giants Low cost of living may make Lidl’s European pricing structure appear to be quite expensive Plagued and stigmatised due to corruption within Government and business; new political leaders leading anti-corruption policies and initiatives. However, their corruption index ranking has been lower than Russia for over a decade but higher than India, South Africa and China
|
4.2 South Africa
4.2.1 Strengths
South Africa is an interesting BRICS economy as it’s not just a single country, it’s several countries in a lower half of a continent meaning Lidl can choose from far more cities from a greater range of countries than other BRICS countries.
Proposals to end poverty by 2030 by creating 5 million jobs up to 2020 to reduce unemployment, poverty and inequality, diversifying exports, strengthening relationships with faster-growing economies, lowering the cost of doing business and moving to more environmentally friendly, sustainable production systems.
4.2.2 Weaknesses
Because of the diversity within South Africa, comparing South Africa to other markets can be difficult; it’s like comparing Leicester to the whole of Germany.
South Africa has a rapidly growing market economy and are well established already in the financial markets; South Africa are likely to already be saturated with grocery retailers
4.2.3 Opportunities
Due to poverty and wealth inequalities, a lot of the grocery retailers in South Africa won’t have access to as much powerful technology that Lidl has.
High unemployment can result in loyal workforces for Lidl with low employee turnover and low training costs
Cost of doing business in South Africa will be cheaper in terms of compliance costs, etc than in other emerging markets
South Africa seem most receptive to foreign investment alongside India
4.2.4 Threats
The pro-foreign investment stance South Africa presents may encourage other retail giants to move to South Africa, saturating Lidl’s market
Cyber-security is a major problem in South Africa which could expose Lidl to certain threats they might not experience in a more technologically developed country.
4.3 Russia
4.3.1 Strengths
Artificial inflation of prices due to Western import ban means Lidl can undercut the competition massively
4.3.2 Weaknesses
Western import ban makes it difficult for companies to get access to Western products leaving many supermarket shelves in Russia baron with the few products they do have’s prices being artificially inflated which is unsustainable.
Hostility towards Western companies
Soviet influence still exists in Russia, Putin is an ex-KGB agent during the rule of Union of Soviet Socilist Republics (USSR) and it is believed that Putin is still very much a supporter of the Soviet Union and therefore, with the disinformation scandal which was designed to turn Third-World countries against the West (particularly the USA, where Lidl is already operating) there may be too much of a conflict of interest which could damage Lidl’s brand reputation in the West.
4.3.3 Opportunities
Lidl could undercut most of the grocery and supermarket competition resulting in supply shortages and artificial price inflation resulting from the Western import ban.
4.3.4 Threats
Lidl will struggle to compete unless they can quickly build an Eastern supply chain and distribution channel in a timely manner unless they’re willing to wait for the trade restrictions to be lifted.
Due to anti-western sentiment which is still prevalent amongst USSR supporting consumers in Russia, Lidl may find themselves being boycotted by Russian consumers.
Corruption in Russia is very high and, resulting in anti-Western sentiment, companies like Lidl may find themselves being treated less favourably by government and other officials than Eastern companies.
4.4 India
4.4.1 Strengths
India is one of the fastest growing of all of the BRICS countries in terms of wealth and the economy overall and population with a lot of encouragement for foreign investment.
India has a rather simple legal structure compared to other BRICS countries making entry a lot easier and can provide a gateway into Southern Asian markets. English is also very widely spoken meaning communication with head office in Germany will be much easier than a country where English isn’t as much a common language.
Low-cost workforce with healthy levels of unemployment which will be conducive to low employee turnover.
4.4.2 Weaknesses
Processed and tinned, non-perishable groceries are largely unpopular in India with very stores selling non-perishable groceries. Fresh fruit, vegetables, herbs, spices and other produce are demanded by the typical consumer in India.
India is mostly vegetarian and in most areas, eating beef is seen as taboo due to the countries devotion with Hinduism as the leading religion in India. Lidl sells mostly meat and dairy in their “fresh” ranges, as well as bakery products so it may be an unsuitable market unless Lidl deviates from their traditional product lines.
4.4.3 Opportunities
There is an opportunity for Lidl to change consumer dietary habits; with their support of the England football team and Gaelic Women’s Football sponsorship, they have been able to influence dietary habits of children by promoting healthy lifestyles through sponsorships with sporting organisations.
4.4.4 Threats
If Lidl weren’t successful in changing dietary habits, they may only be able to cater for niche audiences.
Typical prices of the most popular groceries in India are extremely affordable and Lidl may struggle to compete in terms of price discounting in the Indian market should they deviate their product lines to suit Indian consumers.
Sources:
Brazil Recession Worst on Record: https://www.bbc.com/news/business-39193748
Brazil Recession Deepens: https://www.reuters.com/article/us-brazil-economy-gdp/brazil-recession-deepens-worst-annual-drop-on-record-idUSKBN0TK48E20151201
Brazil’s Unemployment Crisis: https://www.forbes.com/sites/kenrapoza/2017/05/01/brazil-economy-struggles-with-unemployment-reforms/
Brazil falls into recession: https://www.bbc.co.uk/news/business-28982555
Brazil recovers from recession 2-3 years on: https://www.ft.com/content/b0886e9c-8f1b-11e7-a352-e46f43c5825d
Lasting damages of recession are still apparent in 2018: https://www.ft.com/content/f3d2cd90-1e46-11e8-aaca-4574d7dabfb6
Cost of Brazil’s Recession: https://www.denverpost.com/2017/08/21/brazil-lost-decade-recession/
Brazilian Corruption: https://www.cfr.org/backgrounder/brazils-corruption-fallout
Corruption Rank over Time (Brazil): https://tradingeconomics.com/brazil/corruption-rank
Brazil Corruption Perception Index: https://www.transparency.org/research/cpi/cpi_2009/0
Brazil inflation: https://think.ing.com/articles/brazil-low-inflation-and-a-longer-easing-cycle/
Brazil inflation at lowest since 90’s: https://www.ft.com/content/c02ebe46-3cb8-11e8-b9f9-de94fa33a81e
Risks of doing business in China: https://www.gov.uk/government/publications/overseas-business-risk-china/overseas-business-risk-china
5.0 What Country from the BRICS economies is most suitable?
When looking into new markets, especially the BRICS economies, there are several things Lidl would need to consider including;
By using the above considerations, it’s clear that Russia would be unsuitable due to their attitude towards Western economies and a ban on Western products which would include European products; there is also a large amount of corruption within the country and grocery shopping is made very difficult due to artificial price inflation resulting in the ban on Western products.
South Africa would be unsuitable due to strong competition from Wal-Mart and Amazon who have already shown strong competition against Lidl in US markets. Amazon are well known for making losses on products in the effort to undercut competition and steal market share.
India would not be suitable because their consumers demand fresh products and processed, non-perishable foods aren’t well received in the Indian market. Lidl’s business model is unsuitable for the Indian market due to their bulk-buy/stockpiling strategies. Wal-Mart recently acquired Flipkart in a bid to compete with Amazon’s home delivery grocery network in India which demonstrates how furious the competition already is in India.
China appears to be a better candidate though import costs may result in Lidl being less able to offer heavily discounted products; Lidl UK products, when converted into RMB, are competitive with the Chinese grocery market but Lidl are likely to flourish in the luxury grocery sector due to their discounting abilities. China is very receptive of foreign investment and encourages manufacturers to move to China as part of the ‘Made in China’ policy where Chinese government want to be the global powerhouse of manufacturing with Chinese-made products in every home throughout the world. China are quite reserved in their spending habits which may allow Lidl to take an upper hand in the market due to the ability for consumers to purchase more in Lidl than they would in a higher-priced retailer like Waitrose. Lidl would also benefit massively from the Westernisation of Asian markets though it’s clear that Chinese trade policies are attempting to shake off the image of being influenced by Western culture. What really discounts China as a likely candidate for Lidl expansion is their apparent hostility to foreign companies trading in China; foreign companies can be taken over if the foreign company loses or has stolen their ‘chop’, a kind of Seal of Approval by the Chinese government to operate within relevant sectors in China and the lack of liability limitations in private companies where company directors and employees can be held criminally responsible for breaches of consumer laws and other business regulations.
Brazil carries slightly more risk than China but appears to be the most suitable due to a number of factors; Brazilian retail culture isn’t too dissimilar from the American market in the sense that both have multi-channel distribution methods, including stores and e-commerce. Lidl in Germany already offer e-commerce and have been very successful with it. Brazil are less conservative about grocery shopping overall, this was evident during their recent recession where Grocery shopping remained virtually unaffected. Brazil is also favourable because of their recent recession and booms in population; the recession thinned out competition whilst causing a major unemployment crisis (whilst grocery shopping was unaffected by falling incomes) which Lidl can take advantage of. Supermarkets often suffer from high employee turnover and because there aren’t so many jobs for employees to switch to, they’re likely to remain loyal to working for Lidl should they be employed thus allowing Lidl to create well-trained teams of loyal employees. The growing population will only benefit Lidl more over time as more customers look for discount groceries. Brazil does have some drawbacks though, from protectionist country leaders to fraud epidemics, however, Lidl’s focus on technology and sustainable business practices, it is likely Lidl will be able to overcome these barriers making Brazil the most suitable candidate.
5.1 Issues with Breaking into New Markets
Lidl has disrupted markets across Europe and Asia by competing on price and, as a result, stealing market share. However, in the US market when Lidl expanded into the country, Catalina (a digital marketing agency) identified that customers who moved to shopping at Lidl will often return to normal buying behaviours, going back to stores they were previously loyal to after just a few months resulting in the aggressive discounting practices by competing retailers; the likes of Walmart can easily lower prices to match the price or undercut the products sold in Lidl eliminating the price advantage Lidl has making it harder to retain customers on a large scale, Lidl took punches at larger retailers by including more well-known branded products in their ranges, including Coca-Cola and PepsiCo products in, what appears to be, an “if you can’t beat ‘em, join ‘em” mindset. Lidl might struggle to compete further in the US market as retailers cash in on home delivery of grocery and other unique selling points; this is how Aldi managed to get their foot in the market.
5.2 Russia
Artificial price inflation (Luhn, 2015) and state ban on Western (including European) foods (RusPod, 2013) and other hostile trade policies mean Russia are immediately discounted due to lack of market access, Russia is also still believed to be influenced by Soviet policies though Russia’s global influence is increasing:
https://www.washingtonpost.com/gdpr-consent/?destination=%2fworld%2fasia_pacific%2fwar-games-and-business-deals-russia-china-send-a-signal-to-washington%2f2018%2f09%2f11%2f35371ff2-b5b9-11e8-a2c5-3187f427e253_story.html%3f – Russia and China animosity towards the USA
5.3 Brazil
Brazil have been hit with a recession which has caused many businesses to cease trading; meaning there are huge gaps in the market where unemployment is also high. Meaning Lidl can take advantage of the unemployment by bolstering their own workforces when they enter the market and there’ll be less competition due to established Brazilian retail giants buckling. Grocery spending has been largely unaffected by any of the recessions Brazil has had to survive even in the wake of major corruption scandals. Brazil have fought off the stigma of being a corrupt country quite well since around 2010 where new political leaders have maintained anti-corruption policies and initiatives, but Brazil has continued to thrive in the face of corruption scandals.
https://www.ft.com/content/ffb85a34-c617-11e8-8167-bea19d5dd52e Brazil’s Culture of Corruption
5.4 India
Cheap cost of living but dramatic difference in supermarket culture where consumers prefer buying fresh food instead of tins and processed foods. Lidl keeps costs down by buying in bulk and stockpiling reserves which wouldn’t suit the Indian grocery market:
https://www.economist.com/business/2014/10/18/a-long-way-from-the-supermarket (Iceberg lettuce is considered exotic in India)
https://www.bbc.co.uk/news/world-asia-india-19595655 India isn’t an attractive destination for supermarkets
https://www.france24.com/en/20071206-supermarkets-india-will-they-work- Supermarkets in India, will they work?
5.5 China
US-China trade wars and animosity towards the West may make entry difficult for Lidl but China and Lidl are quite competitive in terms of grocery shopping prices, however, whilst in the West, Lidl are seen as cheap, in China, the prices Lidl charge for their products will be cheaper but, if they’re forced to rise due to import costs associated with bringing their products to the Chinese market, Lidl may be entering a luxury market within China. China are quite restrained in terms of their spending habits on luxury products (non-grocery) but the standard of living for Chinese consumers is increasing and more Chinese shoppers are turning to more luxurious foods. The Westernisation of Asian markets will also benefit Lidl’s entry and success in the Chinese market.
https://www.washingtonpost.com/gdpr-consent/?destination=%2fworld%2fasia_pacific%2fwar-games-and-business-deals-russia-china-send-a-signal-to-washington%2f2018%2f09%2f11%2f35371ff2-b5b9-11e8-a2c5-3187f427e253_story.html%3f – Russia and China animosity towards the West
https://www.marketingtochina.com/new-food-trends-chinese-consumers/ – New food habits in China
https://www.telegraph.co.uk/foodanddrink/9850858/Chinas-changing-eating-habits.html – Changing eating habits in China
https://jingdaily.com/9-key-ways-chinese-consumer-habits-are-rapidly-changing-right-before-our-eyes/ – Changes in consumer spending habits
http://www.chinadaily.com.cn/opinion/2015-06/26/content_21114127.htm – Westernisation of China
https://www.echinacities.com/expat-life/A-More-Western-China-4-Areas-Where-the-West-Has-Impacted-China – How the West has Impacted China
https://www.pbs.org/newshour/show/why-china-s-youth-find-western-culture-attractive – China’s youth find Western culture attractive
https://www.jstor.org/stable/29737969?seq=1#metadata_info_tab_contents – Western Influence in China
https://www.pbslearningmedia.org/resource/551d421c-ea36-45d6-9838-0df75a993411/the-effect-of-western-influence-in-china/ – The Chinese Cake, 1989
5.6 South Africa
South Africa are already home to the likes of Wal-Mart (who own ASDA) and Amazon, both of whom are competing furiously to get to the top, of which Wal-Mart is already there and Amazon is in 6th position but only recently entered the South African market. It’s safe to say billions are being invested here and, with South Africa still suffering from a lot of poverty, there may be room for Lidl to enter the market but it’s unlikely the likes of Amazon will allow that; Amazon grocery delivery will be able to outshine any offer from Lidl and Amazon are well known for deliberately making a loss to undercut competitors – this will be worse for companies in South Africa who have very relaxed anti-competition laws and rank highly on the corruption index. Amazon and Wal-Mart are well engaged in trade competition in India as well as South Africa and when they start throwing punches, it’s advisable to stand out of their way. Amazon were outbid by Wal-Mart on the Flipkart purchase, Flipkart are India’s biggest online retailer which is relevant as it’s demonstrative of Wal-Mart’s ability and desire to compete with Amazon and any other retailer, especially a brick and mortar retailer like Lidl. South Africa is welcoming of Foreign investment though.
https://businesstech.co.za/news/business/220551/these-are-the-5-biggest-retailers-in-south-africa/ – Biggest retailers in South Africa
https://www.brandsouthafrica.com/investments-immigration/business/investing/global-companies-in-south-africa – Global Companies in South Africa ***
https://www.biznews.com/sa-investing/2018/05/09/naspers-2-2bn-flipkart-sale – FlipKart purchase by Walmart
http://www.expatcapetown.com/doing-business-in-south-africa.html – Doing Business in Cape Town, South Africa
http://www.suedafrika-botschaft.at/en/doing-business-in-south-africa.html – Doing Business in South Africa (South African Embassy)
https://www.gov.za/issues/national-development-plan-2030 – South Africa National Development Plan
6.0 Travelling from Texas, USA to Sao Paulo, Brazil
Source: Screenshot from Bing Maps.
Google Maps is very similar in that there are no available directions. Theoretically speaking, you can drive from USA to Brazil but it may be more practical to fly. Sao Paulo appears to be a very vibrant and one of the most popular macro-economies within Brazil but operating here may be costly in terms of distribution.
Source: Screenshot from Google Maps
7.0 Brazil Economy
Brazil’s recovery from their recession is expected to continue picking up over next year though reports have suggested a downturn in production in the final quarter of 2018 (FocusEconomics, 2018) but interest rate has been lowered further to 6.5% (Federowski, 2018) which is good news as consumers benefit from low inflation whilst businesses pay less on mortgages on owned real estate.
7.1 Trade Balance
Chart shows Accumulated Balance per Million Dollars between 2007 and 2017
Source: Screenshot from Brazilian Ministry of Foreign Trade and Services (Ministério da Indústria, Comércio Exterior e Serviços): http://www.mdic.gov.br/sitio/interna/interna.php?area=5&menu=3361